Preamble

The House met at half-past Nine o'clock

PRAYERS

[MR. SPEAKER in the Chair]

Pensions (Scott Report)

Motion made, and Question proposed, That this House do now adjourn. [Mr. Boscawen.]

The Minister of State, Treasury (Mr. Barney Hayhoe): I welcome the opportunity to discuss index-linked pensions in the public sector in the light of the valuable report published last year by the committee chaired by Sir Bernard Scott. I should pay tribute to the perseverance of my hon. Friend the Member for Croydon, South (Sir W. Clark), who asked for time for such a debate many times. I am glad that he is here today.
Since we last debated the subject in February, the rate of inflation has continued to show a welcome fall. In February, the annual rate was 12 per cent. Last week it was announced that the September index had fallen for the first time in 12 years and the annual increase in the retail price index is now down to 7·3 per cent., which is the lowest for 10 years. We fully expect the rate to decline further during the next few months and hon. Members will be aware of the prediction my right hon. and learned Friend the Chancellor of the Exchequer made yesterday evening of a reduction to 5 per cent. by the spring of next year, which is first-class news.
More stable money reduces the disparity in pensions that has caused such public concern in recent years. With pensions, as in many other areas, we see the tremendous benefits of controlling inflation. Hon. Members will have noticed the written answer that I have on Tuesday that compared movements in the retail price index, national average earnings and the gross domestic product since 1970. As can be seen from the table, public sector pensioners have only occasionally increased their income by a higher percentage than those in work. However, during the past decade, public service pensioners with index linking have fared better than other occupational pensioners.
Index linking was established by the Pensions (Increase) Act 1971. When the Bill was debated in May of that year it was widely welcomed. The disparities that were to be caused by rapid inflation were not then foreseen. However, before 1971 public sector pensions were uprated on an ad hoc basis, often after much public campaigning. Those irregular increases kept pensions in line with movements in prices, but the process was haphazard and unfair. The significance of the 1971 Act was that it provided regular uprating in place of the previous ad hoc and unsatisfactory arrangements.
When I listen to current pensions discussions it sounds as though some commentators believe that the choice is between index linking and nothing, but that is wholly unrealistic. The choice is between index linking and

another uprating arrangement. Pensions are earned during periods of up to 40 years and they can be paid over many years of a person's retirement. Therefore, even with low inflation, some uprating is necessary. That is recognised in the private sector as well as in the public sector.
Hon. Members may also have seen another long written answer that I gave on Tuesday describing the main pension schemes in the public sector whose benefits are index-linked. I believed that it would be helpful to answer fully and I gave much information about the numbers, costs and method of financing. It is estimated that there are nearly 2½ million such pensions and 5¼ million members of pension schemes whose benefits are index-linked. That is roughly a quarter of the working population. As the table shows, the average Civil Service pension is £32·40 per week, and the average in the public services sector, taken as a whole, is £36·20 a week. Increases in line with those for the State retirement pension are due in November, which will bring the Civil Service average to £35·80.
I suppose that it is inevitable that press comment concentrates upon the increases going to admirals, judges, permanent secretaries and the like, but there are not many of these. Moreover, there is evidence that the public want to see the retirement incomes of members of the Armed Forces, widows, policemen, doctors, nurses, teachers and others protected as far as possible against price increases. To judge from my own postbag, much of the earlier uninformed and sometimes misleading criticism which concentrated on the Civil Service has abated as the facts have become more widely known.
So far I have been talking only of public sector pensions. The situation in the private sector is quite different and perhaps even more complicated. The Scott report gives some interesting information about the great variety of such schemes. This has been supplemented by the surveys which have been published since, notably by the Government Actuary's department and the National Association of Pension Funds. On the whole, although it is difficult to generalise, it seems clear that during recent years private sector schemes have made discretionary upratings of their benefits that have been well below the rates of inflation. On the other hand, the effective rate of employee contribution is usually lower in private occupational schemes. Nevertheless, I recognise the continuing public concern that private sector schemes are generally less good than those in the public sector.
At present, there are almost no schemes available in the private sector which can offer formal index linking. However, my right hon. and learned Friend the Chancellor of the Exchequer announced in the 1981 Budget that the Bank of England would be issuing index-linked gilt-edged stock as part of the Government's policy of diversified funding. Indexed gilts give fund managers an important new financial instrument.
Initially, purchase of the stock was restricted to pension funds and certain other institutions, but in this year's Budget my right hon. and learned Friend announced the removal of this restriction and the Government have issued about £4 billion-worth of indexed stock so far.
Indexed gilts are not intended to provide the basis for indexed pensions throughout the economy, although individual insurance companies may wish to use them in devising indexed schemes.

Sir Anthony Fell: Can my hon. Friend cut all this short by agreeing that the only way to get rid of this


problem is to win the battle against inflation, and that the only way to do that is to stop index-linked pensions for all civil servants and for all Members of the House of Commons?

Mr. Hayhoe: I am grateful to my hon. Friend for wishing to limit the speech which I am trying to make, but I cannot go down the simplistic road that he invites me to take. It might be better if I continue to make the points which I think are relevant to this issue.

Mr. Alan Williams: Does not the Minister recognise that the hon. Member for Yarmouth (Sir. A. Fell) has a legitimate argument and is only repeating what the Prime Minister said earlier, that one of the problems bedevilling us is that so much is now index-linked? The hon. Gentleman listened to what the right hon. Lady said and the Minister is trying to alter what she said.

Mr. Hayhoe: I am reiterating what I said at the beginning of my remarks. I am sorry that the right hon. Gentleman is so remiss that within about 12 minutes he has chosen to forget what I then said. The whole problem of index linking begins to decay once inflation is under control. I hope that he will join me and my right hon. and hon. Friends in welcoming the sharp reduction in inflation that the Government have achieved. If and when inflation becomes, as it was many years ago, extremely low, the problem of index linking in and other areas will become largely of academic importance.

Mr. Alan Williams: The Minister has not dealt with the argument advanced by the hon. Member for Yarmouth. The Prime Minister made another statement on "Weekend World" in which she said that the economies that have gone for index linking and inflation proofing are those which have inflation.

Mr. Hayhoe: The right hon. Gentleman seems intent on working through the ragbag of quotations which he or his research assistant has dredged up. It might be better if he holds on to them because I am sure that they will add lustre to what otherwise will be a deadly dull speech from him.
Index-linked gilts are not intended to provide the basis for indexed pensions throughout the economy, although insurance companies may wish to use them in devising indexed schemes. However, they will make it possible for pension funds, as well as for insurance companies and individual savers, to diversify their portfolios so as to reduce their vulnerability to the risks of inflation. The existence of indexed gilts being traded freely on the Stock Market helps us to become aware of the price that the market is prepared to pay for indexed assets. This is useful in setting a value on indexed pension schemes in the public sector. In this connection, it is worth drawing attention to the work of the Government Actuary's department.

Mr. R. A. McCrindle: In introducing index-linked gilts, were the Government following the recommendations of the Scott committee, or would they have been moving in that direction even if the Scott committee had not reported?

Mr. Hayhoe: It is always agreeable to speculate on what might have happened in different circumstances. As my hon. Friend properly says, the Scott committee advised

the Government to issue index-linked gilts and the Government chose to do just that. The connection between the two is not for me to say. I was not involved in the decision-making and I cannot give an authoritative ruling. However, I suspect that the link exists.
I was about to refer to the Government Actuary's department. The market's response to indexed gilts has confirmed that department's assessment of the value of differences in the inflation proofing of occupational pensions, a conclusion earlier supported by the Scott committee. I am glad to have this opportunity to record the Government's full confidence in the professional competence, integrity and impartiality of the Government Actuary and his department. We should all be grateful to them for the work that they do.
It is appropriate to refer to the long-term prospects of all our pension arrangements, both State and private, the national insurance pension, which is effectively index-linked, the additional element in the State scheme which is index-linked and all the other pension arrangements that exist. Pensions are a form of transfer of income between generations. We must recognise the danger of imposing upon the working population now, or at some future date, through contributions and taxes a commitment to provide more for the retired population than can be afforded. My right hon. and learned Friend the Chancellor of the Exchequer drew attention to this in an important speech to the National Association of Pension Funds in May 1981 in Birmingham.
The demographic arithmetic is there for all to see. Without a renewal of growth in the economy, it will not be possible to protect the incomes of a growing retired population without having an effect on the incomes of those in work. This is not the central issue of our debate, but I think it right to draw attention to this more general problem, which must never be ignored when we consider pension matters.
To complete my remarks on the general context, I should perhaps mention briefly the State earnings-related pension scheme introduced by the Social Security Pensions Act 1975. In addition to the State arrangements—the basic national insurance retirement pension—employers are allowed to contract out all or some of their employees provided that they belong to suitable occupational pension schemes. Those schemes must ensure that members' pensions match, at least broadly, the level of benefit accruing in the State scheme up to retirement.
After State pension age, the State increases, in line with prices, both State earnings-related pensions and guaranteed minimum pensions earned in contracted-out employment. Thus both those contracted in and those contracted out are assured of earnings-related pensions on retirement calculated on the basis of their actual earnings, revalued pre-award in line with the movement in earnings and post-award in line with the movement in prices. When the State earnings-related scheme matures, it will provide, in addition to the basic pension, a pension equal to one-quarter of earnings in the best 20 years of the individual concerned—that is, earnings above the basic State pension and below an upper limit of about seven times the basic pension. Because entitlement accrues gradually, however, the level and number of such payments is as yet fairly small. As the House knows, the scheme will become fully mature by 1998.
I turn to the narrower question of Civil Service pensions, for which the Government have direct responsibility. Since the last debate, the report of the committee chaired by Sir John Megaw which inquired into Civil Service pay was published in July. Although primarily concerned with methods of determining pay, chapter 7 of the report is devoted to non-pay benefits including, especially, pensions. The Scott report remarked that the methods by which the pay of civil servants was adjusted under pay research were complex and obscured the reality of what civil servants contributed for their pension arrangements. The Scott report suggested that it would be an advantage if in future the pension element of the pay comparison were better publicised. The Megaw report goes further and suggests in recommendation No. 19:
Provided this can be introduced at no additional cost to public funds, the basis by which civil servants contribute to their pensions should be one whereby a direct contribution is made from the pay actually received to cover the whole of the employee's share of pension costs. Both the employee's and the employer's share should be publicly declared.
Much of the earlier misapprehension about civil servants not paying for their pensions has abated as a result of the Scott and Megaw reports, which made it clear that civil servants have been making a sizeable effective contribution, estimated by Scott at 7·9 per cent. Nevertheless, misunderstandings are almost bound to continue.
The Government are therefore attracted by the proposal to make the Civil Service pension scheme contributory. This would make it much easier to see the link with pay and to compare the position of civil servants with that of other groups. There would, of course, be no question of uncovenanted benefits or windfall gains going to civil servants as a result of a change to a contributory scheme. I should particularly welcome the views of the House on that suggestion. When the idea was considered from time to time in the past, the argument that the existing system was simpler and more efficient carried the day. Nevertheless, I have long seen the attraction of a contributory scheme, which would avoid the misunderstandings and misrepresentations that have dogged the present arrangements. I shall therefore listen most carefully to the views of hon. Members on this.

Mr. Gavin Strang: We appreciate that the Government have not taken any final decision on this, although the Minister has given a clear indication of the direction in which he is moving. Can he say a little more about the so-called efficiency factor? In practice, as some kind of deduction or contribution is made by civil servants, how significant is the so-called efficiency factor? Could not the case equally be made that it is just as efficient to require civil servants to make a full contribution rather than deducting a notional amount from the salary determined by pay research?

Mr. Hayhoe: I think that I have made my own feelings on this fairly clear. When such proposals were put forward in the past, the Governments of those days took the view that the old system was simpler and more efficient. Moreover, there are problems in changing from a noncontributory to a contributory scheme in such a way as to avoid windfall gains or uncovenanted benefits going to some pensioners. However, partly as a result of the way

in which modern technology facilitates more complicated calculations, what would have been difficult in the past is much less so today.

Mr. Richard Wainwright: As the Minister has invited comment on this very interesting indication of Government thinking, it is important that we are fully clear as to what is in his mind. Will he confirm, as I expect that he will, that although it is suggested that the scheme may become contributory, there is no him at all of starting to build up a funded scheme?

Mr. Hayhoe: The hon. Gentleman's assumption is correct.

Mr. Ian Wrigglesworth: The crucial qualification in the Megaw report is that it should not cost the public purse a great deal more to administer the scheme. I am sure that in reaching a view on this the House will be interested to know what the cost will be. Can the Minister give any guidance on that?

Mr. Hayhoe: My memory of the Megaw recommendation is that the transfer should not involve increased cost, by which I think it meant that those benefiting from the new arrangements should not draw windfall gains or new benefits. At this stage, when the matter is still so tentative, I cannot give a firm estimate of the cost of administration but I am certainly prepared to look into the matter and perhaps to write to the hon. Gentleman.
I have indicated the Government's attraction, at this stage, to a move in that direction and it seems to have been well received by the House, but I know that hon. Members will wish to consider the matter extremely carefully and I hope that we shall hear comments from them on this during the debate
Elsewhere in the public services, the Armed Forces and the police for example now make a more appropriate contribution towards their pensions, which are more favourable than those of most other groups because of the relatively early retirement age required due to the physically demanding nature of their work. These fast accrual schemes, as they are called, clearly demand a higher rate of contribution and those two groups now effectively pay an 11 per cent. pension contribution. The contribution of firemen, who also have a fast accrual scheme, is under consideration.
Much of the public concern about public sector pensions is focused on the cost of index linking and there is understandable resentment at any additional burden upon taxpayers as a result. Few would dissent from the proposition that public service pension schemes should be based upon fair contributions from those concerned. In this context, the cost of pension increases must be included as well as the cost of the basic pension.
It is also worth noting that action on contributions produces more money more speedily than action to cut the level of benefits. The sums involved are substantial. For example, this year's increase in the contribution rates of the police will save the Exchequer about £47 million in a full year. Over the public services as a whole, a 1 per cent. effective increase in pension contributions would amount to about £200 million—I give that figure for purely illustrative purposes—whereas a 1 per cent. reduction in the amount of pension increase would amount to £30 million. The ratio is £200 million to £30 million.
Another important section of the Megaw report relating to Civil Service pensions recommended that the


advantages enjoyed by civil servants, in terms of better pension rights on changing jobs, should be taken into account in pay negotiations. Discussions between the Government and the Council of Civil Service Unions are taking place, and I do not wish to comment upon the merits or substance of that recommendation, but it illustrates one of the other main disparities between public and private sector—mainly the treatment of early leavers. It is comparatively easy for an employee to change his job within the public sector since the schemes are similar. He can either take his pension rights with him or have them preserved until retirement age.
In much of the private sector, as the Occupational Pensions Board has shown, people who change jobs can be put at a severe disadvantage as regards their accrued rights. That can be a disincentive to changing jobs.
The Government believe that the managers of pension funds should review their current practice, which is often both unfair and a constraint on mobility, and therefore on economic performance. The House will have noted the important statement made by my right hon. Friend the Secretary of State for Social Services on Tuesday.
In recent years, many suggestions have been put forward for replacing the present system of index linking—for example, returning to a system of discretionary uprating, including an element of discretion to cut back the increase if the index goes up by more than a certain figure, reducing the increases for those with the biggest pensions and so on. They all have advantages and disadvantages. I am sure that many will be referred to during the debate. However the arguments ebb and flow, and whatever the economic justification for one course or another, let no one underestimate the severe legislative and institutional difficulties in making changes that apply to all index-linked schemes. There are about 130 such schemes, and the legislative and contractual bases on which they are built differ considerably.
Pension increases for the Civil Service are provided directly by statute by the Pensions (Increase) Act 1971, to which I referred earlier, and the Social Security Pensions Act 1975. Some of the other schemes in the public sector at present use a notional fund, while others operate solely on a pay-as-you-go basis.
In most nationalised industries there are fully funded pension funds financed by employer and employee contributions which cover the costs of the benefit. It is an immensely complex subject.
I do not propose to announce firm Government conclusions upon that today. We are making progress towards getting pension contributions right. It must be correct to see that existing index-linked pensions are properly paid for.
I am glad that the debate provides an opportunity for hon. Members to express their views on the complex and important issues involved. I assure all who contribute that careful consideration will be given to their views. I hope, if the House agrees, to have an opportunity to reply to the debate.

Mr. Alan Williams: I apologise in advance for what, as the Minister rightly anticipated, will be an intensely boring speech. Many Opposition Members and those on the Government Benches will feel that it was

worth coming in today, even though we have had to wait 20 months to hear what we have heard. After listening to the Minister, I understand why we are holding this debate on the last Friday of the Session. A month is a long time in politics, and 20 months seems to be a full evolutionary cycle. How the Prime Minister must have hoped that the backwoodsmen were on their high-speed trains to their backwoods and that 20 months later everyone would have forgotten the expectations that she raised when she established the Scott committee of inquiry. We have even had the technological revolution adduced to justify the turnabout. It is the Government's most remarkable climb-down. The Prime Minister's reputation in her stand against the Civil Service has been severely damaged by what we have heard this morning.
The fact that what we have heard is correct only makes what we have heard during the past two years more absurd. We have had the suggestion that a flight into the microchip means that things can be done now that were impossible 20 months ago. We have been told—as we expected—that the Government can do this because there has been a change in the rate of inflation.
The level of inflation at the time the Scott inquiry was set up was quoted. At that time, the Government were saying that inflation would fall, and they are only 1 per cent. or 2 per cent. out on the figure that they were prophesying. The turn-round has been only marginally different from what they expected when they were telling us that it was impossible to retain index linking. During an intervention, I quoted a comment made by the Prime Minister on "Weekend World". It is worth repeating in the context of the claim that the Government can do as they propose because inflation is falling. The right hon. Lady said that the economies which have gone for index linking have inflation. She was telling the public then that index linking was a major cause of our inflation.

Sir William Clark: Sir William Clark(Croydon, South) indicated assent.

Mr. Williams: I respect the hon. Member for Croydon, South (Sir W. Clark). He is one hon. Member on the Government Benches who has retained his integrity throughout the 20 months. What a political pirouette by the Prime Minister. It is not just a U-turn—

Mr. K. J. Woolmer: Election year?

Mr. Williams: How could my hon. Friend the Member for Batley and Morley (Mr. Woolmer) suggest anything so Machiavellian as an election having anything to do with the Prime Minister's thoughts? We know well that elections have no influence on her, and that she in no way tempers her thinking according to political considerations. It always was nonsense to suggest that we should abolish index linking. Paragraph 6 of the Scott report states:
It is a highly desirable social objective that the standard of living of those in retirement should be protected. This is clearly recognised in countries like France and West Germany where the benefits enjoyed by pensioners are superior to those of this country and the benefits of index-linking are extended alike to both public and private sectors.
It can be done in France and West Germany, but we were told months ago that it could not be achieved here.
It took the vengeful mind of the Prime Minister, not to say that index linking is a protection and that we should give it to those who do not already enjoy it, but to seek to turn those who did not enjoy the protection of index


linking against those within our society who do, to justify taking index linking away from them, although they have been paying on the basis that that was the contract that they had with their employer, the Government.
I want to make it clear, as I did when the Scott report was published, that the Labour Party stands firmly behind the concept of indexation. We accept the Scott report. As the Minister said, the new State scheme is index-linked, and that was introduced by the Labour Government. It is a pity, as he implied, that the private sector has not taken the opportunities presented to it by the various tax concessions that it receives and the introduction of the index-linked bond to do as is done in France and West Germany.
The Government's apathy reflects their whole attitude. Let us consider what happens with privatisation. When parts of State industry are sold off and returned to the private sector, all too often workers lose their rights to index-linked pensions. That has happened with steel industry sell-offs, and in the maritime and other industries. In such instances, the Government have sold out their employees, despite their original agreement with them.
It is ridiculous that we should need to have today's debate. It is even more ridiculous that we have had to wait 20 months for it. Anyone reading Scott does not need 20 months to see the logic of his case. It is clear that indexation is socially just and, as Scott revealed, viable. The Prime Minister, by her malevolent intervention, stimulated the erroneous concept in the public's mind that civil servants were on a non-contributory bonanza.

Mr. Peter Viggers: While the right hon. Member is explaining the Labour Party's attitude to the Scott report and to indexation, will he deal with the general and important issue of what the Labour Party thinks should happen if the growth in gross domestic product falls behind the rate of inflation?

Mr. Williams: I shall come to that in time. I should like to develop my arguments in my own way. I have said that we intend to retain indexation. The Labour Party stands by that. Indeed, I have the authority of the shadow Chancellor of the Exchequer to make that commitment on behalf of the Opposition.
The Prime Minister helped to stimulate the false concept that civil servants received index-linked pensions on a non-contributory basis. As Scott, Megaw, the Government Actuary and the 1981 National Association of Pension Funds report say, far from being privileged, recipients of a concession, civil servants pay twice as much for their pensions as workers in the private sector. I accept that Civil Service pensions cost more, but civil servants pay between 45 per cent. and 50 per cent. of the cost of their pensions whereas employees in the private sector pay only one third of the cost. The Prime Minister has never brought that to the public's attention.
In addition to the direct deduction of 1·5 per cent. for dependants' allowances, the civil servant pays 7 per cent. in reductions in pay. The upshot is that civil servants are paying about 8·5 per cent., not 7·9 per cent., of their salaries in pension contributions. That is well within the Scott range of what is appropriate for the benefits received.
The question of the contribution versus the notional reduction in pay is important. We must face that issue to avoid the cheap, petty propaganda campaign that the

Prime Minister mounted against civil servants two years ago. I am inclined to agree with Megaw that it is difficult for the public to understand the concept of a notional reduction in pay. The fact that we have moved away from comparability with the private sector is irrelevant. Because the public do not understand it, it would be better to give civil servants their full pay and make the full cash deduction so that it is transparently clear that they pay fully for their pensions.
The Minister of State emphasised that there should be no gratuitous gain to civil servants, but there is another side to the coin. There should be no extra cost to civil servants as a result of the decision to change. There should certainly be no accrual to the Government from the change.
The confusion in the public mind raises a more important aspect. One can appreciate that the public would not understand the notional reduction in pay, but what about the Prime Minister? After all, she was a member of the Government who introduced indexation in 1972. Why was she unaware of how the system worked? Why was she unaware that it was not a non-contributory scheme? The Prime Minister constitutionally is the head of the Civil Service. I should have thought that she would have at least a limited awareness of how the system worked. Was she not briefed by officials in the Cabinet Office and the Treasury? They were aware of how the system worked because they managed to produce a lengthy and detailed answer during the week as part of the Minister's softening up operation for his Back Benchers. One must conclude that the Prime Minister was incredibly ill-informed and ill-briefed, although she prides herself on her mastery of technical detail. Alternatively, she must have made a deliberate attempt to whip up public feeling against civil servants for her own political objectives.
The only other conclusion that one can reach is that the right hon. Lady listened to the Conservative Party Centre for Policy Studies. That is more than likely. What did Scott say about the centre? Scott hammered it because it got its figures wrong. It said that it would take 50 per cent. of salaries to pay for index-linked pensions. The centre has had to keep its head down ever since.
I expect that there was added spice for the Prime Minister, because by kicking something set up in 1971–72 she could make a side kick at the right hon. Member for Sidcup (Mr. Heath) who was primarily responsible for introducing the scheme. That might have added spice to the pleasure that the Prime Minister gained from turning civil servants into whipping boys. The Prime Minister played a destructive and misleading role in the public debate prior to the publication of the Scott report.
The Prime Minister's hatred of the Civil Service is well known. [Interruption.] Tory Members obviously do not like my saying that. They have kicked civil servants round Whitehall for the past three years but no one must mention it. It was the Prime Minister who tore up the 25-year-old agreement on pay research to ensure comparability. That agreement was also introduced by a Conservative Administration.
I am not surprised that the Minister of State went out of his way to pay respect to the Government Actuary. He should have gone on his knees and apologised to the man because he has been pilloried indirectly by the Prime Minister. She would not accept his recommendations on pensions and contribution levels, so she set up the Scott committee. Scott vindicated the Actuary and even Megaw


was allowed to have a go in the hope that he would do what the Scott committee failed to do, despite its members being hand-picked by the Prime Minister. The Prime Minister wanted her own preconceived prejudices to be substantiated.
Such is the Prime Minister's love of the Civil Service and her fear for her own political survival that even now she is trying to blame Foreign Office officials for the fact that she did not do her job properly during the Falklands crisis.
The Prime Minister's pay struggle with the civil servants—eventually settled for the same amount; it could have been settled at the outset—cost us over £500 million in interest on uncollected taxes. Her errors are dear—£500 million in her clash with the civil servants, and over £1,000 million for her ineptitude in failing to recognise the signs in the South Atlantic. It is hard to believe what most Conservative candidates said in reply to questionnaires that they received from the Civil Service unions in the last election. Overwhelmingly they supported the idea of indexation. On the eve of the election, in a programme called "Election Call", the Chancellor of the Exchequer—at that time, he was a shadow Chancellor with hopes—went out of his way to emphasise that an incoming Conservative Government would preserve indexation of Civil Service pensions. Nevertheless, within 12 months of coming to office, the Prime Minister singled out this issue as one of the prime targets for her malevolence and for whipping up a public campaign.
Why is the issue raised now? Might it not have been better for the Prime Minister to bury it? She tried to bury the Scott report. Might it not have been better to leave it buried, gathering even more dust on the Treasury shelves? The hon. Gentleman said that facts have become better known. They have indeed. Certain facts have become better known to the Prime Minister as a result of a paper submitted by Baroness Young to her Cabinet colleagues, pointing out that there were certain minor political disadvantages in taking on the civil servants on this issue because there happened to be 5½ million people in the public sector with index-linked pensions, all of whom would be affected, and there happened to be 2¼ million existing pensioners on index-linked pensions. So, 7¾ million people, together with their families, would be affected by the Government's decision on Scott.
As my hon. Friend the Member for Batley and Morley said, an election year is coming up. Today, we have heard a desperate attempt by a frightened Government to buy back the Civil Service votes that they lost in their campaign over the past years against the civil servants. The Government know very well that they could not leave the matter buried, because the same civil servants who sent questionnaires last time would send questionnaires this time, and having been deceived last time, the civil servants do not intend to be deceived this time. So the Government had to try to defuse the issue in advance of the election.
So we saw the softening up of the Back Benchers with the enormous bludgeon of the PQ the other day. I think that one of the papers called it an eight-page press release. The Government are still dodging the basic issue. They still will not answer the basic question. The hon. Gentleman tried to fudge the fundamental issue on which the representatives of the Civil Service unions and the other public sector unions want answers. They describe it as

tentative and therefore open to discussion. What is to be the new contribution? That is what the unions want to know. The hon. Gentleman used the words "tentative" and "not at this time." He wants to consult and consider. He will study till the cows come home—or, certainly, until the boats come home. Certainly, the Government will not make a statement, if they can avoid it, about contributions. Their decision on what the split should be— one-third or one-half—will determine whether those people currently receiving index-linked pensions lose as a result of the change that the Government intend to make. So the Government have fudged and will continue to fudge the basic question of contributions.
Nevertheless—this should not be misunderstood outside—we have witnessed today a major U-turn by the Prime Minister. It is easy to understand why she waited 20 months before she allowed this debate to take place.

Mr. Woolmer: My right hon. Friend talked about fudging by the Minister. Am I not right in thinking that at no point did he give any commitment to preserve index linking? Was not the phrase that he used that the choice was not between index linking or no index linking, but between index linking and some other form of uprating? Will my right hon. Friend press the Minister to assure us that the Government are intending to guarantee to keep index linking, or if not, to press him on what he meant by that phrase?

Mr. Williams: The hon. Gentleman's implication was that index linking was obviously more desirable than the arbitrariness of the alternative. However, my hon. Friend is right, and when the Minister winds up, I hope that he will state, categorically and unequivocally, the Government's continued commitment to indexation. I hope, too, that he will clarify the question of contributions.
As I said, we have just seen a major U-turn by the Government. It was no surprise to me. I had already anticipated that today, instead of hearing so much about civil servants, we should hear—as we did—about widows, the police, the Armed Forces and the nurses. Those are groups, of course, behind whom the public will rally. Now that the Government want to change their position, they put the hated civil servants into a quiet dark locker and bring out on parade the police, the Falklands hero's, the Armed Forces, the nurses, and the poor widows, in an attempt to stimulate a change in public attitudes and conceal the fact that this has been a major defeat for the Prime Minister.
It is a humiliation for the right hon. Lady, as her Back Benchers appreciate. It is a capitulation. She has been caught, not by the logic of the situation but by the inevitability of the electoral timetable. So today, the Government have surrendered on an issue to which the Prime Minister tied so much of her standing and reputation with the Right wing, the backwoodsmen of her party.

Mr. John G. Blackburn: We have followed closely the right hon. Gentleman's interesting speech. Will he grant us the courtesy of replying to the question from my hon. Friend the Member for Gosport (Mr. Viggers)?

Mr. Williams: I said—and if it needs any further clarification, I adduce the views of the Shadow Chancellor on the matter—that we are committed unequivocally to the continuation of indexation.
We have heard the Minister's statement today. We appreciate his position. It may embarrass him if I say that we know that from the outset he knew the impossibility of the posture taken by the Prime Minister. He and the noble Lady have actually had the courage to tell the Prime Minister—obliquely, I trust, for survival's sake—that she is wrong.

Mr. Charles R. Morris: If the situation envisaged by the hon. Member for Gosport (Mr. Viggers) comes about, not only index-linked pensions will be at risk, but everyone's pensions.

Mr. Williams: Of course. The difference is that we happen to believe in growth policies and this Government believe in non-growth and negative policies.
At last—and for the first time—we have heard common sense from the Government Front Bench on this issue. What the representatives of the unions will want to be told—

Mr. McCrindle: As the right hon. Gentleman is outlining Opposition policy on these matters, will he tell us whether a future Labour Government would continue to issue index-linked bonds and whether it would be the hope that, in the event of high inflation, index linking would be possible for private pension schemes and not just those in the public service?

Mr. Williams: The mechanisms are a matter for discussion and I suggest that the hon. Gentleman raises the matter in an economic debate. We have given our commitments and shall choose the appropriate mechanisms at the right time. It is for the Government to convince—

Mr. McCrindle: rose—

Mr. Williams: No, I shall not give way. I have given way on various occasions and there are other hon. Members who wish to speak.
The Government must not only answer the question about contributions, but convince the representatives of the public sector—not only the civil servants—that what we have heard today is not just a temporary expedient to see the Government through until the next election but that it is a genuine and permanent change of heart on their behalf.

Sir William Clark: I am delighted that the debate is taking place. The right hon. Member for Swansea, West (Mr. Williams) did not, for one moment during his long speech, say anything about policy or the impact of index linking on the economy. All he said was that if a Labour Government—God forbid—ever returned to office, it would continue with index linking. I can well understand why he did not respond when he was asked if he would continue with index-linked bonds, saying only that the mechanisms would be dealt with at the appropriate time. It is a typical Socialist approach to all our economic evils to say about a problem "Let us defer it and carry on as we are." The Labour Government got us into this mess before we took over in 1979.
I regret that the right hon. Gentleman set out from the start not to talk about the Scott report and index linking but to make a personal attack on the Prime Minister. It was disgraceful. It shows the paucity of the Labour Party's policies. However, there is one issue and probably one

issue alone on which the Labour Party can achieve complete unanimity, and that is an attack upon the Prime Minister. If they go into policy matters, they start falling apart. I congratulate the right hon. Gentleman on his adroitness in managing to keep members of his own party together, sparse as they are.
It was also completely and utterly unjustified for the right hon. Gentleman to criticise the Government for not having arranged a debate on the Scott report since February 1981. Few of my hon. Friends will recollect the Labour Party pushing the Leader of the House to have a debate on the matter. In fact, whenever it was raised Labour Members were remarkably silent. If they were so keen to have the Scott report brought out in the open and to commit the Government to making their position clear, or to have a Supply Day debate, why did they not press the Leader of the House? The right hon. Gentleman knows jolly well why they did not. They obviously do not want to commit themselves.
It would not be a bad idea to return to what we should be talking about today—the Scott report. It will be recollected that under the previous Conservative Government, a committee set up by my right hon. Friend the Member for Sidcup (Mr. Heath), thought that the ad hoc arrangement for inflation-proof pensions that there had been with the Civil Service and the public sector—an annual increase of 3 per cent. or 4 per cent. after argument and discussion—should be regularised. I accept that the committee had a point at that time. The committee's report was subsequently followed in 1971 by legislation. Inflation was then running at about 5 or 6 per cent. —bad, but not as bad as we have seen since.
The one error that was made by that committee was that it did not look forward and put a limit on indexation. With inflation at 5 per cent., on a decision to index-link, people would receive 5 per cent. One might think that civil servants and the public sector are underpaid, and I shall return to that point. With hindsight, one might have said that with a going rate of 5 per cent. pensions should be indexed up to a maximum of 6 per cent. Everyone then would have been extremely happy. That did not happen.
Consequently, if we look at the increases that have occurred in the public sector—I agree that it does not only apply to civil servants—we see that in 1971–72, for example, index linking was 9·5 per cent. That cost the taxpayer, irrespective of funds there may have been in the public sector, an extra £40 million—not very much. In 1974–75 pensions went up by 26·1 per cent. at a cost to the taxpayer of an additional £180 million. In 1982–83 it is envisaged that they will increase by 11 per cent., despite the fact that the going rate is 7·3 per cent. The extra cost to the taxpayer will be £500 million to £600 million.
I fully agree that not only civil servants are affected, but also local authorities, teachers, firemen, National Health Service workers and, indeed, Members of Parliament. What I am saying applies to each and every one of those, including Members of Parliament. Over 1·6 million people are receiving pensions in the public sector. However, that does not include the nationalised industries, which have a remarkable and important effect upon our economy.

Mr. Chris Patten: My hon. Friend always does his homework and gets his figures right before making a speech. Can he say how much less public service pensioners would be getting now if they had been limited


to 6 per cent. a year? On average, what would be the pensions for the Armed Forces, the police or the Civil Service if there had been that 6 per cent. limit?

Sir William Clark: Thinking aloud, I would have thought that on lower pensions the amount would be small. It would, of course, be much more on higher pensions. I regret that I cannot give my hon. Friend that figure. Perhaps he should ask my hon. Friend the Minister, who has research facilities that are not available to me, rather than put the burden on me.
Under the 1980 Act British Rail pensions are indexed. They received a 16·6 per cent. increase in 1980 at a cost of only some £6·6 million. Pensions in the British Steel Corporation, the mining industry and British Airways are all indexed. I shall return to that. If we compare nationalised industries with the private sector we see that the private sector is fully funded. We accept that some pensions in the public sector are partly funded and some are pay-as-you-go, while in the private sector pensions are fully funded.
In the private sector most private pension schemes have an escalation clause to account for inflation. The amount varies from pension fund to pension fund but it is probably no more than 3 per cent. In the private sector, at the end of a company's financial year, the company will look at its profitability for that year. It will say: "The pension scheme has an inbuilt 2 per cent. increase. We have had a good year. Let us put another £1 million or £2 million into the pension fund." Therefore, instead of a 2 per cent. uplift, pensioners will receive a 4 per cent., 5 per cent. or 6 per cent. uplift. However, it is not a commitment.
If the company has a disastrous year, perhaps as a result of the world recession, it will accelerate its demise if it is under a legal obligation to change the index from 2 per cent. to whatever the going rate of inflation may be. That shows the gross disparity between the public and private pension schemes.
Job security in the public sector has been greatly underestimated. The Clegg committee did not take that sufficiently into account. One need only look at the facts. Throughout the public sector, including the nationalised industries, there has, in the past year or so, been one redundancy for every 15 in the private sector. That shows the job security in the public sector. I could give other examples, but I do not wish to reopen the issue. However, hon. Members will remember that Dr. Clift was suspended for four and a half years, on full pay, while receiving full entitlement to his index-linked pension. Such things could not happen in the private sector. Let us consider the Crown Agents and the amount of money that has been lost. I think that it was this week that the Minister said that no action would be taken and that there would be no diminution of the pension rights of the civil servants involved.
I am trying to show that those in the public sector enjoy privileges that are not available in the private sector. As has been said, another advantage of the public sector is the transferability of pensions. Employees can move round in the public sector without any loss of pension rights. However, it would be extremely difficult to obtain transferability in the private sector. It is all very well to say that fund managers must cope. However, how does the new pension fund take over responsibility for a man of 45

who has paid into a firm for 15 or 20 years and who then moves to another firm when he is almost at his maximum earning ability?
It is easy to say that what is done in the public sector should be done in the private sector, but unless we nationalise the private sector it will be impossible to obtain parity of treatment. We used to hear a lot about comparability and it used to be said that those in the public sector earn less than those in the private sector. That is rubbish. A man earns roughly the same whether he works in the private or public sector, but he has more job security if he works in the public sector.
I must declare an interest, because I am a consultant to Commercial Union. I am assured that if the private sector were to give index-linked pensions there would have to be a premium, or contribution, of almost 33 per cent. of the total wage bill. It would be nice to be able to afford 33 per cent. , but it is to whistle in the dark to think that the private sector can do so.

Mr. Alan Williams: Obviously, we are interested in the hon. Gentleman's remarks and recognise his expertise. However, how has the admittedly fairly small company, Target Life, been able to offer this facility?

Sir William Clark: I understand that Target Life offers fully indexed pensions to the self-employed. That does not involve such great amounts. However, I shall return to that point later, because it involves indexed bonds.

Mr. McCrindle: My hon. Friend has predicted that it would require an increase of about 33 per cent. in contributions for a private pension scheme to be fully inflation-proof. What rate of inflation has he assumed?

Sir William Clark: I speak from memory, but I think that the figure was based on an assumption of 8 or 9 per cent. However, it is not the accuracy of the figure of 33 per cent. that is important so much as the principle of the matter. Contributions would have to be substantially increased to provide index-linked pensions. My hon. Friend is right to say that everything depends on the rate of inflation.
Britain is becoming a country of two nations. I am not against those in the public sector, but they are enjoying benefits that those in the private sector, who produce the wealth, do not enjoy. All hon. Members want fairness in our pension arrangements and, therefore, this question must be considered.
I understand that the Government Actuary has not allowed his figures to be subjected to public scrutiny—the scrutiny of other actuaries. I also understand that his basis was a constant 3 per cent. return on investment. However, history tells us that 1 per cent. would be good. Therefore, there is a fallacy. Indeed, the Scott report contains another tremendous fallacy, because it bent over backwards to justify index-linked pensions in the public sector.
In 1982–83, indexation in the public sector will cost the taxpayer £500 million or £600 million. There is an anomaly about the public sector. Last year, working civil servants received a 4 per cent. increase in salary. It could be said that their standard of living was reduced, but the pensioners will receive an increase of 11 per cent. We have got things out of proportion. We cannot possibly immunise any section of the community against the vagaries of economic circumstances.
It has been said that we should issue index-linked bonds to private pension schemes. That sounds all right, but it


is rubbish because there are only £4 billion-worth of index-linked bonds in existence. The private pension schemes and the self-employed pension funds amount to about £130 billion. That is roughly the size of the national debt. Therefore, to say that index-linked bonds are the panacea is ridiculous. They are an economic disaster. I hope that my right hon. and hon. Friends will realise what we are doing.
I shall do some simple arithmetic. If a 10-year bond of 100 units is issued at 2 per cent. interest per year, but inflation proofed, the person who earns it will receive 2 per cent. one year, a little more next year, and so on. But at the end of 10 years the Government will need to pay back 259 units. With a constant 10 per cent. inflation over 10 years, borrowing £100 today and repaying it in 10 years' time means repaying 259 units. That is splendid—provided that in the 10 years we have somehow accumulated the difference of 159 units in order to pay. But that is not what is happening in our national accounts. We are charging the 2 per cent. to the national funds. In this hypothesis we should not only be charging the 2 per cent. ; we should be charging the inflation element in the year in question. But we are not doing that.
Anyone at the stroke of a pen could cut the public sector borrowing requirement. This year it is supposed to be about £9.5 billion. It will probably be less than that. That is based on £15 billion being paid in interest on the national debt.
If the right hon. Member for Swansea, West wants index-linked pensions throughout the private sector, I can suggest what his mechanism should be—to swap the whole of the national debt for index-linked bonds, and reduce at a stroke the £15 billion interest charge to £2·6 billion.

Mr. Richard Wainwright: The hon. Gentleman is dealing with an enormously important point of national accounting. I remind him that last summer, in the Select Committee on the Treasury and Civil Service, in answer to that very question, the Chancellor of the Exchequer pointed to the very small type in the Red Book which shows that an estimated annual instalment of the inflationproof payment is included in the Estimates.

Sir William Clark: The question was also posed in the House of Commons during the Budget debate. There is a note at the top of the page in the Red Book about interest including inflation elements, but lower down the inflation-proof element is deducted. Perhaps the hon. Gentleman and I could deal with that point on another occasion.
I was trying to help the right hon. Gentleman with the mechanism and I was saying that at a stroke we could reduce the public sector borrowing requirement. If we could replace the £15 billion by £2·6 billion, that would be a saving of £12·4 billion and it would produce a Budget surplus.
One can well imagine what fun there would be if the right hon. Member for Bristol, South-East (Mr. Benn) ever took control of Britain's finances. The present system is hopelessly bad housekeeping. I have said so repeatedly and I shall continue to say it.
Index-linked pensions have retarded and will continue to retard the process of privatisation. No industrialist can possibly take over part of our nationalised industry and at the same time take over the responsibility for the index-linked pensions built into it.
The National Freight Corporation was sold recently to the employees of that company for £53·5 million. I

welcomed that privatisation; I was delighted by it. But as politicians we should consider what is involved. As soon as the Government received their £53·5 million on behalf of the taxpayer, they had to pay back £48·7 million to set up a pension fund for the National Freight Corporation. There were a few expenses relating to the issue, and so on, and the taxpayer received only £4·6 million from the transaction.
In the prospectus of the National Freight Corporation, the small print shows that that the Government retain the responsibility for the index-linked pensions of the corporation. I was told that the first year's cost was £5·3 million. Therefore, having made £4·6 million profit, we have already had to spend £5·3 million on the index-linked pensions which could be taken over by the corporation, even though it is a co-operative. If we have to pay £5·3 million this year, what shall we have to pay next year? The Department concerned was kind enough to tell me that the actuarial liability for the index-linked pensions was £74 million.
One wonders what will happen with the privatisation of British Airways. The example I have just given of the National Freight Corporation shows how essential it is for the Government to grasp the nettle. They must do something about it. Naturally, I congratulate the Government on having been able to reduce inflation to 7·3 per cent. We can look forward to inflation of 5 per cent. in the spring of next year because we have prudent financial management, but prudent financial management cannot be guaranteed in the future. If it could be, I should be very happy.
I have no doubt that the Conservative Party will be returned to office at the next general election but who knows what will happen in six or 10 years' time? At some time there will be a change of Government, although I think it will be a long way ahead. We remember the enormous overseas debts incurred by the last Labour Government. What would happen if there were to be another profligate Labour Government? Once an index-linked bond has been issued and the inflation rate has gone up to 15 or 20 per cent., no incoming Government, however good, can do anything about it.
The Government should look seriously at some means of getting out of the commitment that has been made, but it would have to be done honourably. There are various ways in which it could be done. We could endeavour to get back to the old system, which works extremely well in the private sector. If productivity and the national finances were good this year, we could increase all public pensions by whatever percentage seemed appropriate. We might say that as the inflation rate is now about 7 per cent. and is falling, we shall guarantee a figure of 8 per cent. for the next two years, but that after two years we reserve the right to go back to the old system.
Another possibility would be to fix a maximum figure. Then, if inflation were to go down to 5 per cent. in the spring, we could go back to a figure of 6 per cent. The Government Actuary and the financial pundits could work out the cost of one year's pension tax-free. It would take the responsibility off the taxpayer.

Mr. McCrindle: May I try to establish that my hon. Friend, in this most interesting speech, is beginning to accept that to terminate index linking as such is virtually impossible, and that all we can do is to interfere with the


present method of index linking? That is what he appears to be suggesting when he says that we should explore various avenues. That is not ending index linking.

Sir William Clark: I accept that, but I did say that there must be fairness. People in the public sector have been made promises that in my view the country cannot afford. Somehow that responsibility has to be overcome. I have tried to suggest some avenues through which one could get back to a realistic position. My second suggestion was to fix a maximum inflation escalation clause of 3·5 per cent. in the public sector, but that would cost a great deal.
I have suggested that we should give one year's pension, tax free, to everyone in the public sector in return for the 3½ per cent. concession. With the lower pensions—and this may be more attractive—we might continue inflating indexation until we reached a figure of 50 per cent. of whatever the retirement pension was at that time, and after that to inflate by only 3½ or 3 per cent. I should have thought—
It being Eleven o'clock, Mr. SPEAKER interrupted the proceedings, pursuant to Standing Order No. 5 (Friday sittings).

Steel Exports (Brussels Discussions)

Mr. Stanley Orme: On a point of order, Mr. Speaker. I received the statement at 10.52 am. That is completely unacceptable. This practice is occurring regularly, and I protest strongly about it.

The Secretary of State for Industry (Mr. Patrick Jenkin): I unreservedly offer my apologies to the right hon. Gentleman and other hon. Members who are entitled to receive the statement. Until a very late hour last night I was first in Brussels and then in Birmingham and I caught the first train to London this morning. We did our best, but I fully acknowledge that we did not deliver the statement to the right hon. Gentleman and other Members within the accepted time scale. I can only profoundly apologies and hope that they will forgive me.
I should like to make a statement on steel exports to the United States of America and the steel regime in Europe.
Yesterday, the European Community reached agreement on the terms of a negotiated settlement with the United States. We have thus avoided the imposition of countervailing and anti-dumping duties on certain United Kingdom steel exports.
The Government recognised from the outset the importance of resolving the issue in a way that would guarantee the United Kingdom steel industry a reasonable share of the United States market, to which we have traditionally had access, and avoid the imposition of punitive duties. We gave our full support to the European Commission's efforts to that end. The negotiations lasted several months, and continued until the last possible moment. On Wednesday all member States except Germany had signified their acceptance of the package. The German Government had a number of last-minute reservations, but they were satisfactorily resolved in Brussels yesterday. That enabled the United States Administration to persuade the American steel industry to withdraw their countervailing and anti-dumping cases, and this the companies did formally late last night.
The settlement will establish, from 1 November, restrictions by means of export licences on Community sales of a range of carbon and alloy steel products until 31 December 1985. In addition, Community exports of steel pipes and tubes will be monitored, and if they exceed a 5·9 per cent. share of the United States market immediate consultations will be held, with the possibility of control measures being introduced. While the arrangements with the United States of America inevitably represent a compromise, the outcome is without any doubt much better for our steel industry and for jobs in British steel plants than it would have been without an agreement. I shall place details of the arrangements in the Library as soon as possible.
Anxiety over United Kingdom steel exports to the United States of America has by no means been our only worry. Markets for steel across the world have been collapsing and there is a world-wide excess of steel-making capacity. Those problems pose real threats to the European steel industry. Yesterday in Brussels, we again pressed for a significant tightening of the voluntary restraint arrangements governing imports from non-Community countries, which come up for renewal at the end of the year. As a result of our pressure, those arrangements will be on the agenda at next week's Foreign Ministers' meeting. I also pressed Vice-President
Davignon to ensure that the measures to restore stability to European Community steel markets are enforced more effectively, including the mandatory production quotas and the rules about pricing. We are determined to ensure that the quota regime and the price rules are observed as scrupulously by other countries as they are by us, and I have made it clear to the Commission, which has the responsibility for policing the regime, that we intend to keep them up to the mark.
I also spoke to Commissioner Andriessen about what other member States are doing to restructure their steel industries. He confirmed my fear that, despite the major contribution made by the United Kingdom, the preliminary figures for cuts in steel-making capacity notified to the Commission by member States did not meet any reasonable estimate of forecast demand. I said that I expected the Commission to apply the rules of the ECSC State Aids Decision strictly and fairly, so that aids would not be permitted unless accompanied by commensurate capacity reductions. This country has already done a great deal. Both the British Steel Corporation and private sector firms have made great sacrifices to make the steel industry competitive. The Government are doing all in their power to ensure that other member States face up to their responsibilities and bear their share of the necessary sacrifice. I shall be pursuing all those issues individually with my Community colleagues and jointly with them at an informal meeting of industry Ministers, to be held in Denmark on 18 November.
The steel industry in Britain is an essential part of our manfacturing industry. I am determined to safeguard the best interests of the industry and all those whose jobs depend on it.

Mr. Orme: The statement has been made at a time of crisis in the British steel industry. The Opposition view the position with grave concern. Was agreement reached between the German Chancellor and the Prime Minister during his recent visit to Britain, or were the German actions sprung upon the remainder of the Community during the negotiations? The German action appears to be rather odd.
Have not the Germans now been allowed to increase their capacity under the EEC provisions to allow for the cuts, especially in tube exports to the United States? Does the Secretary of State agree that, as the United States Commerce Secretary stated, the agreement will substantially reduce European steel imports to the United States? What steps will the right hon. Gentleman take to ensure that the excess steel does not find its way into the dwindling United Kingdom market?
Are not steel imports into Britain well in excess of 30 per cent. of our total consumption? More than two thirds come from the EEC, and the other one third from Third world countries. What action will the Government take in a shrinking British market? It is not sufficient for the Secretary of State to say that he will monitor the position. We want action. Will he not tell Viscount Davignon that other countries in the EEC are violating agreements and that the voluntary agreements are not satisfactory?
As the United States has imposed quotas, presumably without retaliation, should not the British Government take similar steps to protect our industry? We want import controls to protect our domestic industry, or one or two of our major steel areas will be in jeopardy.
A report in The Guardian today states that the chairman of the British Steel Corporation has told the Government that they must take responsibility for deciding whether the Ravenscraig plant in Scotland should close, with the loss of 4,400 jobs. That would be wholly unacceptable to the Opposition. Not one of the five main centres can be allowed to close, in any circumstances. We want a categorical assurance from the Secretary of State that that will not happen.
There are two courses of action that the right hon. Gentleman can take. One is to extend the cash limits that are now pressing in on the steel corporation. The second is to introduce import controls. The Government might also increase demand, which would have a dramatic effect. It is under grave circumstances that steel workers today are taking action to defend their communities, interests and industry. It is our industry as well. The Secretary of State's statement is completely unsatisfactory for the future of the British steel industry.

Mr. Jenkin: l do not disagree with the right hon. Gentleman's description of the present position as one of crisis. It is a grave position. We should try to look at it as rationally as possible.
The problem all along with the Germans is that the levels of anti-dumping and countervailing duties against German steel in America were at a substantially lower figure than those for most of the other Community countries. Therefore, they felt all along that if there were to be an arrangement they should not bear a proportionate share of the cut but should have a larger share. Nothing new happened this week. They have always had reservations, particularly about the tube and pipe addition on which the Americans insisted. The German Cabinet decision on Wednesday was made expressly subject to agreement on burden sharing. That agreement was reached in Brussels yesterday. That there should be such a major commercial difference of interest and that it should have been resolved in the way it was augurs well for Anglo-German relations.
The right hon. Gentleman asked about Mr. Baldridge's statement. There is a reduction of European steel imports to America. That is the purpose. However, he must remember that the American steel market has declined by about 20 per cent. The reduction in imports will probably be less than 30 pet cent., so that less than 10 per cent. is attributable to the agreement. Had we not had an agreement, far more than that would have been at risk, particularly for the British Steel Corporation, which stood to lose about £50 million worth of exports directly and perhaps twice as much indirectly because of the duty. Therefore, I think that we have averted what I would regard as a disaster.
The right hon. Gentleman asked what action we would take. I spelt out the steps that we are taking to make sure that the Commission, which has the authority in these matters, will enforce the new regime as strictly as possible. It is not just a question of monitoring. We are looking for action on lower totals under the voluntary restraint arrangements. That will be discussed next week at the Foreign Affairs Council. We are looking for action on the strict implementation of the aids regime and on the implementation of the quota and pricing rules. We are simply monitoring but looking for the Commission to take action to enforce that regime because without it we cannot expect stability to return to the steel market.
The right hon. Gentleman seems to believe that we could impose import controls unilaterally. He knows, because he was a member of a Government who lived under the Paris and Rome treaties, that our capacity to do that is strictly limited. In most of those products the Community has the competence. I have no doubt that we have secured a much better deal as a result of our membership of the Community than we could have done on our own. In all the actions that I am pressing upon the Commission and in my discussions with Mr. Davignon and Mr. Andriessen yesterday, it has been clear to me that the Commission shares our view and is our ally. We want to work with it to make sure that the regime works properly.
The right hon. Gentleman referred to the report in The Guardian. Mr. MacGregor has told the Government that the British Steel Corporation cannot now expect to meet its financial target to break even in 1982–83 and that the prospects for the following two years have deteriorated. We are discussing with the British Steel Corporation the economic and financial framework within which the corporation's new three-year plan from 1983 to 1986 will be prepared. I make it clear to the right hon. Gentleman that no decision on the closure of major steel works would be taken by the British Steel Corporation without close consultation and the agreement of the Government. I shall not shuffle the responsibilities on to Mr. MacGregor's shoulders. They are the Government's responsibilities; I am prepared to shoulder them. We do not yet know precisely what steps need to be taken to deal with the new situation, but I shall find an opportunity to inform the House as soon as decisions are taken.

Mr. Tam Dalyell: My right hon. Friend the Member for Salford, West (Mr. Orme) asked the right hon. Gentleman about Ravenscraig.

Mr. Jenkin: I cannot give specific undertakings one way or the other. The hon. Gentleman will understand that.
The right hon. Gentleman asked for my view on the strike. The steel industry is facing serious problems. Without any doubt, the 1980 strike cost the British Steel Corporation hundreds of thousands of pounds, perhaps millions of tonnes of custom. Any strike must weaken customers' confidence in the ability of BSC to deliver. I should have hoped that the trade unions would understand that. They are not helping their case one little bit by the action that they are taking today.

Mr. J. Enoch Powell: What is the nature of the American quid pro quo? We and other EEC countries are imposing by law restrictions upon our citizens. Is the law of the United States to prevent the resumption of the countervailing and anti-dumping cases or will the American companies be free legally to resume those cases at their will?

Mr. Jenkin: As their side of adherence to the agreement, the American companies have withdrawn their anti-dumping cases. The agreement runs until 1985. So long as the agreement is withheld it is clear that the American companies could not seek to raise cases based on the agreement. If it were broken, different considerations would arise. However, some more recent

cases involving special steels, which are not covered by the agreement, continue to be pressed. We shall continue to negotiate through the Commission for a satisfactory resolution of those problems.

Mr. Donald Anderson: Is not the American protectionist attitude in a matter that so vitally concerns the Americans' national interest a precedent for us when so many steel imports affect our own interests? What will the Commission do about the unfairness of Italy being able to increase its steel capacity when our steel capacity has been so brutally reduced?

Mr. Jenkin: I am sure that the hon. Gentleman recognises that the world faces a threat of a trade war with rising protectionism as a means of trying to deal with the current recession. It cannot be to the advantage of this country, which exports a higher proportion of its gross domestic product to other markets overseas than any of our major industrial competitors, to embark on a trade war of rising protectionism. The right hon. Gentleman's call for import controls sits uneasily alongside his criticism of the Americans.
The hon. Gentleman's second question was one of the points that I discussed with Mr. Andriessen yesterday. The aids regime is dependent upon cuts in capacity to bring capacity in line with projected demand. The Commission has powers in that regard. We are determined to see that it uses them.

Mr. John G. Blackburn: Does my right hon. Friend accept that this news will be received in my constituency with cautious optimism, as it is dominated by the Round Oaks steelworks? In view of the sacrifice made by 2,600 of my constituents who have been made redundant, we must insist that there is thorough control of the policing of the agreement. We expect every help from the Department in obtaining the 5·9 per cent. market share of the American market in tubes.

Mr. Jenkin: Insofar as it lies within our power, the Department will want to make sure that the agreement is implemented to the maximum advantage of the British steel industry, in the public and private sectors. I am grateful to my hon. Friend for his recognition that the agreement is a cause for optimism. However, I do not disagree with the epithet that he applied to it.
My hon. Friend will recognise that in present conditions no one can be guaranteed a job, but I intend to ensure that a British steel industry with an adequate capacity survives.

Mr. Michael Foot: What is adequate?

Mr. Jenkin: As the right hon. Gentleman knows, that is a question that we are examining. I read the speech that he had to make to his constituents when his Government closed down steel making in Ebbw Vale.

Mr. Foot: We are now talking about a drop to 14·4 million tonnes.

Mr. Jenkin: The production of liquid steel last year was 14·4 million tonnes, but the actual capacity was over 20 million tonnes. With the market collapsing, the question is how much of that can sensibly be kept in being.
No one can be guaranteed a job, but I wish to do all that I can to protect the steel industry's interests.

Mr. Richard Wainwright: The Secretary of State made a grave statement about other member States failing to restructure their steel industries,


but gave no information about the extent of that failure. Will he undertake to place in the Library preliminary figures for cuts in steel making capacity that have been notified to the Commission by other member States?

Mr. Jenkin: The lists for State aid closed a month or two ago. Mr. Andriessen tells me that he has a large pile of paper that his department is seeking to analyse, but his preliminary view is that the proposed cuts in capacity did not measure up to what was necessary to bring capacity in line with demand. I asked him when we might have more detailed figures, and I expect more detailed information when we meet in Denmark next month. Without commitment, I shall bear in mind the hon. Gentleman's request that the figures be placed in the Library.

Mr. Dalyell: Will the Secretary of State take it from a Scottish Member who represents only a few steel workers that on 18 November in Denmark he should bear in mind that any closure at Ravenscraig would be a greater industrial calamity that the closures at Linwood, Corpach and Invergordon combined and that, if anything were to happen to Ravenscraig, in the sober view of a number of us the consequences would go far beyond the steel industry and, indeed, beyond industry generally? Does the Cabinet understand that?

Mr. Jenkin: The hon. Gentleman would not wish me at this stage to comment on what he has said, but I am peculiarly aware of its importance.

Mr. Nigel Forman: May I congratulate my right hon. Friend on his part in getting the agreement? Is it not a fact that the European Commission has the legal competence to deal with these matters and a much more effective capability to negotiate on behalf of the Community than we have on our own?

Mr. Jenkin: My hon. Friend is right. The American countervailing and anti-dumping duties imposed significantly higher levels of duty on British steel products than on those of any other country. Although we were successful in the preliminary proceedings in reducing the figure from 40 per cent. to about 20 per cent., it still represented a virtually insurmountable hurdle, and we stood to lose more and were more vulnerable than most of our Community partners. An agreement has been reached. It is a compromise, but it is a darned sight better than the situation would have been had an agreement not been reached.

Several Hon. Members: rose—

Mr. Speaker: Order. I propose to call the five hon. Members who have been rising to their feet before I call on the Front Bench spokesmen.

Mr. Ian Wrigglesworth: Although the agreement is welcome, is the Minister aware of the anxiety, particularly in steel making areas, first, about whether the steel industry will remain a viable national industry and not fall below the Alamein line so that it ceases to be viable, and, secondly, that the devastating blow of closing the plant at Redcar would extend way beyond the industry and affect the social and economic infrastructure of a community that already has 20 per cent. unemployment? As well as pursuing the courses that he mentioned, will he urge his Cabinet colleagues to reflate the economy to take up the capacity available at Redcar, Ravenscraig and so on, which is the only solution to the problem facing the steel industry?

Mr. Jenkin: I cannot say anything specific about Redcar. There is a need to control public expenditure, but capital investment in the public sector has not fared badly. Between 1981–82 and 1982–83 the Government will be spending 14 per cent. more on new construction and nationalised industry investment will rise by 26 per cent. A general reflation aimed at boosting the demand for steel could not possibly avoid returning us to the dismal spiral of increased inflation and high interest rates, which has done more than anything else to damage industry's prospects.

Sir Brandon Rhys Williams: May I, too, congratulate my right hon. Friend on coming to a common-sense agreement in an extremely painful situation? Is not the position of our exporters and manufacturers reminiscent of the problems of the 1930s, but with the special advantage that we maintain free access to the Common Market countries? Will he give an undertaking that the Government will do nothing to damage our free trade commitments to the other EEC members?

Mr. Jenkin: I am grateful to my hon. Friend for what he says. Imports into this country have increased, but the total import penetration in the United Kingdom steel market in the period from January to July was 28 per cent., which is significantly lower than the import penetration for a number of our European competitors—for instance, France, where imports account for 43 per cent. of the market, and Germany, where the figure is 35 per cent.
The availability of a free European market in steel is essential, but to achieve a proper balance between demand and capacity the regime that the Community countries have agreed must be effectively enforced. That is the main burden of what I said to the Commission yesterday.

Mr. Gavin Strang: Is the Minister aware that the suggestion that the BSC is even contemplating closing the plant at Ravenscraig Es outrageous and utterly unacceptable to the people of Scotland? Does he not understand that to close steel production at Ravenscraig would write off Scotland's future as an industrial nation? May we have a statement next week to put an end to the wholly damaging speculation?

Mr. Jenkin: I cannot promise a statement next week. The problems are difficult and will take time to resolve. Mr. MacGregor, in seeking to find a way through the problems that the BSC faces, is right to present the Government with a number of options. That is what I have asked him to do, and that is what he is doing. I do not wish to say more about Ravenscraig. I do not wish to create hopes or cause undue despondency. The Government have closely in mind the points that the hon. Gentleman has raised.

Mr. Roger Moate: May I, too. congratulate my right hon. Friend on taking part in securing an agreement, which, although it has not stopped the increasing pressures on the British market, has prevented an even worse situation? As we are likely to be subjected to even more pressures, perhaps from Continental imports, on our already inadequate steel market, if we can enter into voluntary quota agreements with our American partners, why cannot we do the same with our European trading partners and secure from them


voluntary restraint on exports to our markets, especially at this crucial time, when there is clear evidence that they are not all abiding by the agreements to reduce capacity, particularly in Italy and Germany?

Mr. Jenkin: In 1980 the Governments of the Community believed that it was appropriate to impose mandatory quotas on production, to ensure price transparency and to ensure that companies adhered to the provision for listing prices. It is left to the forces of competition to ensure that efficient industries will receive the money. The British Steel Corporation, under Mr. MacGregor's leadership, has taken manful steps to increase efficiency and some plants are as efficient as any in Europe.
However, we must ensure that the agreement sticks. If it does not, the Council of Ministers must consider further measures. In the meantime, I shall do everything in my power to ensure that the Commission fulfils its responsibilities under the regime that is in force and that is intended to provide the stability that we all wish.

Mr. Bob Cryer: Can the Secretary of State confirm that the agreement represents a cut of a least 10 per cent. in exports to America? He referred to monitoring exports of pipes and tubes from Britain to America. Is there an arrangement that would trigger off action by American companies against increased imports of pipes and tubes during the monitoring process? The right hon. Gentleman mentioned the Government's determination to enforce a quota regime. Is that not entirely in the hands of the EEC Commission, and is it not true that the Government have no control over the matter? Does the right hon. Gentleman believe that the Commission will do worse or better in this matter than it did on textiles, which is seen by the industry as little short of unmitigated disaster?

Mr. Jenkin: I cannot add to what I have already said about pipes and tubes. The arrangement that we have reached with the Americans is that the export of pipes and tubes will be monitored. If the 5·9 per cent. share of the American market is exceeded, immediate consultations will take place with a view to enforcing controls. That is a reasonable compromise.
The Government are not completely powerless to deal with production quotas. Article 58 of the Paris treaty states

that production quotas are a mandatory requirement. The Commission must enforce the article. If it fails to do so, certain steps are open to the Government to force it to do so. The hon. Gentleman mentioned textiles. He will know that the German Government have taken a case to the European Court because, in their view, the Commission failed to apply the textile aids regime properly in relation to Belgian textiles.
I am satisfied that our aims and those of the Commission are almost identical in ensuring the proper enforcement of the regime. Our best hope is to ensure that the Commission remains our ally.

Mr. Eric S. Heifer: In view of the right hon. Gentleman's final statement, will he tell the House what steps the Government will take if the EEC countries do not abide by their responsibilities? There has been a tremendous increase in imports from the EEC—more than 67 per cent. in the steel industry—so is it not clear that the other member States are not accepting their responsibilities and that we must take action? After all the nice, friendly discussions, what action will the Government take if the other European countries do nothing? What will the Government do to face up to their responsibilities to the British people and to the steel industry?
The Secretary of State said that the Government have discussed options with Mr. MacGregor. May we have a statement next week in the House on the matter? The right hon. Gentleman said "No", but we wish to have a statement and an early debate before he meets his fellow European Ministers. It is a crisis for our industry and our people. We wish to know precisely what the Government intend to do about it. We shall back them all the way if they do something positive, but we shall oppose them if they do not face their responsibilities. They have not faced them up to now.

Mr. Jenkin: Although I understand the hon. Gentleman's anxiety—much of which I share—I can go no further than I went in replying to the hon. Member for Keighley (Mr. Cryer). My right hon. Friend the Leader of the House must decide whether we debate the matter. I cannot promise a statement next week because the subject is complicated. The should be able to express its view, either after a statement or during a debate, when decisions are reached, as is our normal procedure. However, I cannot yet present any decisions to the House. Therefore, a statement would be premature.

Pensions (Scott Report)

Question again proposed, That this House do now adjourn.—[Mr. Garel-Jones.]

Sir William Clark: Before the debate on steel, I was endeavouring to point out that the indexation of pensions or bonds was so important to our future economy that it would be disastrous if we continued along the present road. I offered several options for the Government to consider. The first was that the contribution should increase substantially, to about 33 per cent., but that would produce an anomaly between a man aged 25 and a man aged 45. My second suggestion was that we might return to the old system of arranging the increase in pensions each year or every other year. If we do that, we must pay more to existing pensioners and I suggest that it might be one point about the rate of inflation, guaranteed for two years, with a review, on the understanding that it would depend upon what the country could afford.

Mr. Wrigglesworth: Did the hon. Member for Croydon, South (Sir William Clark) suggest that the contribution should be increased to 33 per cent.? If so, on what basis did he calculate it?

Sir William Clark: It would be wrong for me to repeat what I said earlier. My information is that, with inflation at about 7 or 8 per cent., the contribution from the employer and the employee must be about 33 per cent.
The third option is to say that the maximum will be equal to the average in the private sector, which is about 2½ per cent. However, if that is believed to be too niggardly, it could be increased to 3½ per cent. , which may mean that the Government must give one year's pension tax-free as compensation. The Government may also continue to inflation-proof the pension to up to 50 per cent. of the present retirement pension and then to index at about 3 per cent.
I understand that those who enjoy the benefits of the public sector are annoyed that their future will change, but I put the reverse of the coin. Many people in the private sector are incensed because they do not enjoy the same advantages. It is no good us hoping that they can enjoy them, because the number of index-linked bonds available is inadequate. Employment in the public sector is so attractive that it acts against the private sector. Index-linked pensions are an albatross around the neck of the taxpayer. Index-linked bonds are an even greater albatross that the country cannot afford.
Indexed bonds merely put off the evil day when the taxpayer has to pay. Indexation of pensions is unfair, unjust and uneconomic. I hope that the Government will have the resolution to grasp the nettle. It has been with us since 1971 and it is obvious that indexation does not work. It is unfair and we must do something about it.

Mr. Charles R. Morris: I preface my contribution by endorsing the appreciation that has been expressed on both sides of the House to Sir Bernard Scott and his committee for the obviously detailed work which they have put into the preparation of the report which is the subject of our debate this morning. I was equally encouraged by the measured and conciliatory opening speech that we have listened to from the Minister in presenting the Government's views on the report. The

Minister's speech, in my view, was a very able exercise in taking the heat out of what has become a politically embarrassing issue for the Government.
When one talks of political heat in the context of public service pensions, one has to remember the individual who made a major contribution to generating it. It was, in fact, the Prime Minister. The hon. Member for Croydon South (Sir W. Clark) belaboured my right hon. Friend the Member for Swansea, West (Mr. Williams), who quite rightly reminded the House of some of the statements made by the Prime Minister on the subject of public sector pensions and index linking. If the hon. Gentleman feels that there are so many advantages attached to working in the Civil Service and the public sector, one is bound to pose the question why he did not follow the advantages that he sees so clearly.

Sir William Clark: The right hon. Gentleman's comment cannot be germane to the argument that I was advancing. I have been quite happy in the career that I have followed. There are attractions in working in the public sector but it does not necessarily follow that everyone wants to work in it. I would not want to work in it.

Mr. Morris: Quite rightly, the hon. Gentleman is conceding my point. People exercise a choice and it is a fact that civil servants and public servants go to work in the national interest in the Civil Service and in the public sector because of the attractions of stability of employment and because of the pension entitlements which go with these posts. Those are precisely the reasons why people become civil servants and public servants.
The Scott report is, I believe, an unusual report. In its recommendations and conclusions it vindicates everybody other than the person who established the inquiry, the Prime Minister. The report performs a useful service, I believe, in demonstrating, contrary to public conception, that the 5·6 million public service employees covered by the Pension Increase Act 1971 contribute about twice as much to the cost of their pensions as their counterparts in the private sector.
I believe that the Scott report might have proved more readable and certainly more enlightening had the report inquired why the Pensions Increase Act 1971 and index linking of public sector pensions reached the statute book in the first place. I would argue that the increasing of public service pensions has more to do with frightened Ministers in 1971 than it has anything to do with the demands of Civil Service trade unions, civil servants or public servants generally.
Let me elucidate, that point. What actually happened before 1971 was that the national staff side of the national Whitley council—every public sector and every Civil Service union from the Police Federation to every organisation representing public servants—organised an annual campaign to increase public sector retirement pensions. Then one able and erudite civil servant, who subsequently became a permanent secretary and who has since retired, argued at that time with Ministers that they could obviate this annual political embarrassment by conceding the indexing of public sector pensions. That is precisely what happened. Ministers not only seized the solution to their political embarrassment put forward by the able civil servant at that time and accepted his views but they enshrined indexing in legislation. Looking at the


whole question of the indexing of public sector pensions, which is now enshrined in legislation, I cannot see any future Government ever being able to muster a majority to change that legislation. Certainly any change in the present situation will require legislation.
Turning to the Scott report itself, I looked at appendix 2 very closely. This purports to catalogue the multiplicity of different pension schemes and systems in the public sector generally. But apart from two unusual schemes of pension enhancements—pensions generally—which are not included in that appendix, the first of the three areas to which I would like to draw attention is the rather generous pension arrangements which certain boards of public institutions and public industries have organised for themselves.
If we look closely at the pension arrangements enjoyed by the boards of some publicly owned industries, we see that they have arranged for themselves what is known as the Inland Revenue memorandum No. 12 provisions. Those who know pension arrangements closely will realise that the Inland Revenue memorandum No. 12 provisions provide two-thirds of salary on retirement after as little as 10 years' service. Here we are having a major debate about civil servants who have retirement pensions of £32 a week yet the boards of members of certain publicly owned industries have arranged for themselves two-thirds of their salary after as little as 10 years' service.
Then there is the rather unusual and fascinating arrangement enjoyed by senior officers of the Armed Forces and in the Ministry of Defence. They have a very novel arrangement for enhancement of retirement pensions. I suggest to the Minister that he consults his right hon. Friend the Secretary of State for Defence and inquires why some senior officers are promoted in rank during the last year of their service before retirement. It is illuminating to find out just how many senior officers are promoted during their last year of service. It is an exercise in increasing their service pay to enhance their retirement pension. I invite those who are concerned about civil servants receiving pensions of £32 a week to have a look at some of the other senior civil servants who are enjoying something appreciably more.
We all see businessmen going from the private sector into the public sector. The hon. Member for Croydon, South was going on about pension arrangements in the private sector. He had better start looking around the board rooms. If he does, he will see the pension arrangements that managing directors have arranged for themselves.
The House has seen evidence of this when businessmen leave the private sector to take responsibilities in the public sector. For instance, the Government and the taxpayer had to pay more than £1 million to buy out Mr. MacGregor's private pension entitlements so that he could become chairman of the British Steel Corporation. Arrangements of that kind should at least be borne in mind in examining the position of individual civil and public servants.
Paragraph 18 of the Scott report recommended that the analogues from the public sector should henceforth not be used as comparisons because of the danger of circularity—that is, the pensions and pay of other public sector workers generating increases for civil servants in the immediate employment of the Government. I recognise that danger, but I do not believe that the Scott recommendation will make one iota of difference. I am not

sure that Sir Bernard Scott and his colleagues have read the Priestley report of 1955, which in paragraphs 146 and 147 describes the areas from which the analogues are to be drawn. It does not differentiate between the public sector and the private sector, but says that Civil Service pensions and pay should be based on fair comparisons with the rates of pay enjoyed by comparable groups working for good employers in the private sector. If one excludes the public sector, the unions will therefore rightly provide comparisons with other good employers in the private sector, so the argument about circularity is irrelevant to the question of the analogues.
I believe that the Scott recommendation ignores the principle of fair comparisons laid down in the Priestley report, although I agree with Scott that there should perhaps be greater surveillance of public sector pensions and the method of determining them. I believe that the Labour Government were right to establish the Civil Service pay research board to monitor the work of the pay research unit in making the comparisons. The Minister should consider establishing some form of surveillance of pension arrangements for the civil and public services generally. I do not suggest for one moment that anything untoward is going on, but I am concerned to establish public confidence in the system. I believe that that would not only be in the public interest but in the interests of the civil and public servants, to whom this country owes a great deal of gratitude.

Mr. R. A. McCrindle: Some people, both within and outside the House, seem to think that index linking is a new idea. Nothing could be further from the truth. The first evidence of it was 62 years ago. Equally, some people, both within and outside the House, seem to believe that index linking has always been restricted to the public sector. That is not true either. For a very long time, it was possible in the private sector to obtain a pension that took careful note of the vagaries of inflation. The only reason why that has been less so in recent years is that it has been impossible for the private sector to obtain a return on investment equal to the going rate of inflation.
In the 1920s and 1930s and up to 1971 there were separate Bills to increase public service pensions and, by and large, increases were small. Therefore, to a greater extent than has been the case since 1971, there were comparatively few complaints. Such complaints as there were came from the Government of the day because of the political embarrassment caused to them. I therefore doubt whether many Governments, actual or prospective, would enjoy the thought of a return to the situation that prevailed before the change was made in 1971. Also in the private sector there was progressive "dynamisation" of pensions after they came into payment. That, too, was possible because it was possible to obtain an adequate return on investment.
The House must therefore consider what has changed to cause the whole subject to become highly charged with emotion. There have been three changes. First, public service pension increases have become institutionalised. Many hon. Members object to that because they feel that they can no longer control the increases through parliamentary discussion. Secondly, since 1971 inflation has been rampant during the periods of office of both Governments. As a result, the private sector has been


unable to equal the public sector in index-linked increases. Therefore, to nobody's surprise, the public sector has seemed to have such an advantage that an understandable feeling of envy has been created within the army of private occupational pensioners. Thirdly, the taxpayer is now clearly seen to have to foot the bill for public sector increases and he believes that as a result two nations have developed in pension terms.
In those circumstances, it is right to focus our attention on whether we can produce fairer results so that all retirement pensioners, whether they worked for the public sector or for private enterprise, believe that they are treated fairly. If in the process of moving towards a fairer system we can reduce public expenditure and thus the inflation that lies at the heart of this whole problem, we shall be making great progress. Where we risk going adrift is in assuming that we must deprive those who have index-linked pensions in the interests of those who do not.
I make a strong plea that we should move to ensure that all retired people, whether they worked in the public or the private sector, should receive index-linked pensions of one kind or another. If we do not do that, we run the risk of forgetting that all Governments have a responsibility to maintain the standard of living of retired people. They are the most vulnerable section of our society and Governments would violate their responsibility if they did not accept that duty.
There are two broad ways in which that duty can be discharged by Governments. They can either contain inflation—the ideal index linking is nil per cent. annual inflation rate—or, if they cannot or in some cases are unwilling to do so, they must compensate retired people for their failure to achieve that objective.
In all those circumstances, it is not surprising that this has become a matter of great controversy, and that the Government should have set up an inquiry to allay the public anxiety that sprang from the prospect of having one's index-linked pension withdrawn—if one already has it—and trying to achieve proper protection against inflation if one has retired from the private sector.
It is not surprising that the Scott committee refrained from condemning the index-linked pension system and recommended that it should be extended to the private sector. There was no reason for the Scott committee to do that. Its terms of reference did not contain a request for it to make a statement on the principle of inflation proofing. However, such was the evidence that the Scott committee took that it felt that it had to uphold the principle of the index linking of pensions. It argued not only for its maintenance, but for its extension to the private sector, because the committee believed that it was the Government's duty to maintain the standard of living of those on retirement income.

Sir William Clark: How will the Government get money from the taxpayer to immunise all pensioners against the vagaries of inflation?

Mr. McCrindle: I shall come to that. My hon. Friend the Member for Croydon, South (Sir W. Clark) should remember what I have already said, that if the Government can achieve a nil rate of inflation, or something close to it, that is the ideal level of index linking. If Governments fail to do that, for whatever reason—for example, international factors—I do not believe that they can run

away from their responsibility and say "We cannot control inflation." It lies within the power of Governments to move in that direction.
If my hon. Friend the Member for Croydon, South wants proof of that, surely the performance of the Government that we support is positive proof. 'We inherited rapidly rising inflation which, because of the policies that have been pursued, has fallen from 22 per cent. to 7 per cent. and, as he said, is heading towards 5 per cent. next year. That shows that if the Government have the will, they have the means, but if they fail there remains a responsibility upon the Government not to take it out on retired people whose income must be protected. They are the most vulnerable section of society.
Some people speak as if index linking relates only to the Pensions (Increase) Act 1971. That is not so. When the 1975 Act is fully operative index linking will be extended to all people who are not contracted out. In 1995 all public service pensioner; and all those in the second national scheme will be all right, but not occupational pensioners.
I turn to the principal point upon which I believe my hon. Friend the Member for Croydon, South and I disagree. Scott recommended that index-linked bonds should be generally available to the private sector. I am delighted that shortly after that recommendation was made the Government seemed to agree by introducing in 1981—long before any response to the Scott report was forthcoming—the first tranche of index-linked bonds, available originally only to pension schemes and insurance companies. That shows that the Government understand that they have a responsibility, and that ideally that responsibility is discharged by reducing inflation, but if they cannot or will not achieve that a move in the direction of index-linked bonds should automatically follow.
I believe that we are on the way to a degree of index linking for all, and that that would be an end to the inequities of which people complain. People will then say, understandably, "At what cost?" That brings me to the point made by my hon. Friend the Member for Croydon, South in his intervention. People would say "Is it rot adding to inflation? Is there not some vicious spiral that means we shall never come to grips with inflation?" That obliges us to analyse the system of contributions and rewards within the public sector and assess what help is needed and can be produced for the private sector.
There has been a great deal of exaggeration about the contributions made by public service pensioners and of the high pensions that such pensioners receive. I have a note that shows that the average pension for the Armed Forces is £33·80, the National Health Service £36·40 and local government £25·70 per week. It is possible to fasten on to the high pensions, but they are the exception and not the rule and do not undermine the principle of index linking. We have to ensure that contributions made by public servants towards their pensions are correct. Scott seemed to conclude that they should be between 3 and 8·5 per cent. In 1980 they were between 3·8 and 7·9 per cent. An adjustment is needed but not a radical change.
I am in favour of higher contributions when they can be justified, but I do not pretend that by any actuarial valuation we shall conclude that there will be a need to increase vastly the contributions of those in the public service.
Some suggest that the expense could be minimised by having a cut-off point. People see that differently. I am prepared to suggest—I hope the Minister will comment on


this—that there is an argument for a cut-off point at a rate of inflation above which no public service pension will be indexed, because if the country stands on the verge of hyperinflation—that means many different things to different people—there is an argument that everyone, including public service pensioners, must rally round to defeat it. I made that point during an Adjournment debate on this subject on 5 February. The Minister could not reply then. I hope that he will do so today.
The ideal assistance for the private sector is the keeping down of inflation. If that is achieved, no help is needed from the Government to achieve a return on investment which would allow private sector pensions to be index-linked. It is because the return on investment has been impossible that help is needed. If someone could tell me where I could have obtained a return of 29 per cent. on my investment in 1978 I should have been delighted. It simply was not possible.
If the inflation rate increases, by Government action or inaction, to a point beyond which it is reasonable to expect a return on one's investment, the Government are right to move towards issuing index-linked bonds. Only that can iron out the unfairness. As my hon. Friend the Member for Croydon, South said, there is a degree of two-nation philosophy. There is a feeling of resentment and sometimes envy by the private sector. The only way to iron it out is either by containing inflation at such a level that the private sector can provide for itself, or by the Government assisting if they fail to control the level of inflation.

Sir William Clark: I take my hon. Friend's point about keeping inflation down, but does he agree that all that the Government of the day would do would be to push the responsibility for the inflation element in an index-linked bond on to future taxpayers?

Mr. McCrindle: If that were so, it would happen only if they failed in the first part of the duty to which I have referred. My hon. Friend cannot have it both ways. If the Government bring down inflation, there will be no need for index-linked bonds to be available to the private sector. If they do not succeed, they cannot cry off and shed their responsibility.
I accept in large measure the Scott report recommendations. It is a much maligned document which speaks much good sense. It says, first, that we must keep inflation down so that no index linking is needed and therefore no unfairness follows. Secondly, it says that we should extend the principle of index linking to the private sector by index-linked bonds.
I press the Opposition Front Bench to say whether the Labour Party believes that index linking is good, not only for the public sector, but for the private sector. If the Opposition believe that, do they believe that it should be made possible by Government action?
I accept that we must re-examine contributions and cutoff points, but good pensions have to be paid for. There is no escaping that fundamental consideration. There is no better time to examine the situation than the period that we are now moving into when there is a falling inflation rate.
I repeat an argument that is often glossed over. It is that many in receipt of index-linked pensions, which do not

exactly allow a life of luxury, were employed in areas of the public sector where pay is traditionally low. A sense of balance is essential.
I hope that my hon. Friends will forgive me if I ask them not to forget the political dimension. I have marvelled at the ability of some of my hon. Friends to suggest that we should move towards the termination .of index linking, sometimes reneging on promises, without considering the 7½ million public service pensioners and their families. To disregard the voting intentions of 10 million people is blind folly.
Index linking is here to stay. The question is, how do we extend it and pay for it? As we move towards a lower inflation rate, I believe that we can do both.

Mr. Ian Wrigglesworth: I agreed with the general thrust of the remarks by the hon. Member for Brentwood and Ongar (Mr. McCrindle), but reliance on the type of political interest that he advocated in the latter part of his speech has damaged debate on the subject. I am pleased that the hon. Gentleman is putting pressure on his colleagues, because political interests, particularly in the recent past, have done much damage. I hope that the hon. Gentleman will not advocate political interest too strongly.
The House should examine what means the country has, working under its elected representatives, to create the best possible administration. It is in the country's interest that civil servants carrying out the wishes of the House should be employed under the best possible terms and conditions of service.
I should like to think that the debate and the Minister's speech will help remove a sore which has been running for too long—the whole index-linked pensions issue. Some rich paradoxes have been involved in the debate over the last decade. First, although the whole index linking measure was introduced by a Conservative Government in 1971, Conservatives since have been responsible for much of the antagonism over index-linked pensions. Secondly, the Prime Minister and some of her colleagues have been vociferous in their criticism of index linking in the past, yet the Minister states today that index linking should stay.
The hon. Member for Croydon, South (Sir W. Clark) has said that the Government stance involves depriving those who have to satisfy those who have not. That is usually a criticism made of the Opposition Front Bench. That is a rich paradox.
The Minister's statement takes us a considerable way forward. I hope that it will lay to rest some of the arguments over index linking in recent years. As the right hon. Member for Swansea, West (Mr. Williams) said, we should make it clear that the Minister is saying that the Conservative Government are in favour of index-linked pensions. I hope that that will ring out from the House loud and clear to all Conservative supporters and to all in the media who have attacked index linking. Let us have it on the record that the Conservative Government are in favour of index-linked pensions.
We are dealing with one of those awful features of modern British politics which one could call "oppositionitis". When parties go into opposition they pick up the rhetoric of opposition and then they have to reverse when they come to Government and look at the facts.
The committee was expected by some to be the means of ending index-linked pensions. When the facts were


studied, not by people with an axe to grind for the Civil Service or other parts of the public sector, it was decided to support the retention of index-linked pensions.
I speak for my colleagues when I say that we stand fully behind the Scott report when it says in its summary and conclusion:
It is a highly desirable social objective that the standard of living of those in retirement should be protected.
That should apply not only to the public sector, but to the private sector. I hope that that message will go from the House to the private sector, although today we are debating the public sector.
The Government's proposals will help to sustain public confidence in the Civil Service. I hope that the House will agree that a change to a contributory scheme will help to stem some of the past criticism.
In an intervention I spoke of the cost of changing to a contributory scheme. I hope that the Minister will come back to the House on that. The only reservation that we should have about such a change is if it costs the taxpayer a considerable amount or if it costs the workers—the future pensioners—a considerable amount in contributions. I hope that the Government can give the figures.
I hope that the House will agree in principle that changing to a contributory scheme is desirable. I worked in the Post Office when it became a public corporation and there was a switch from a non-contributory to a contributory pension scheme. One benefit for the staff is that their market value is increased.
The gross pay of a member of staff increases, so, to the outside world, his salary is increased. So if a civil servant applies for another job, his gross pay will have been increased by the pension contribution which is to be deducted. So civil servants will benefit if that change takes place.
One of the questions that the Minister did not answer, and on which he was pressed, was what would happen to contributions—not only in the Civil Service but in other spheres where index linking takes place. I am sure that all civil servants will want to know what is to happen. The Minister said—it raises immediate suspicions; he said it with some pleasure—that a 1 per cent. increase in contributions meant a £200 million accrual to the Treasury. That course would be most attractive to the Chancellor of the Exchequer, and knowing how much Chancellors like to get money in the coffers, I imagine that civil servants would be afraid that he might be tempted to increase contributions with the resultant benefit that the Minister describes.
In other spheres—there has been some debate on the subject—perhaps contributions should be increased. Contributions in some of the other index-linked schemes outside the Civil Service vary. Again, it would be interesting if the Minister said something on that matter, although I realise that his ministerial colleagues are responsible for teachers, police, and other parts of the Civil Service which have index-linked pensions.
There is one matter that I hope will become the subject of debate to a considerably greater degree than has occurred in the past, and that is the funding of pension schemes. In some other countries pensions are arranged on the basis of pay-as-you-go. I have considerable anxiety about the impact that pension funds are having on the capital markets of this country. Moreover, at times an unnecessary burden is put on existing employees in funding pension schemes, and that burden might lessen

were there a change to a pay-as-you-go basis. I hope that some investigations will take place, particularly in large nationalised industries, into a switch from a funded scheme, with the enormous funds that exist, to a pay-as-you-go system.
The transferability of pensions has also been mentioned. I hope that the Government will take a lead in this respect, because it is one of the most important factors affecting mobility of labour, and, in particular, mobility of people from the Civil Service to the private sector and back again. I should like much greater transfer of people into and out of public service. However, one of the great difficulties is the disparity in the terms and conditions of service and, above all, the difference in pension arrangements. I hope that the Government will give considerable thought to this subject to see whether greater transferability can be introduced.
That brings me to the private sector, where a considerable amount needs to be done to improve the pension arrangements that now exist. Index linking in public sector pension provision is not so much a reflection of the generosity that exists in the public sector as a reflection on the the poverty of the arrangements in the private sector. We should say that loud and clear. In some firms, the occupational pension schemes are good, but :in many they are abysmally bad. It is not good enough for employees in the private sector who are paying half or less of the contributions towards their pensions that public servants pay to complain about public sector pensions, if they are not also pressing for substantial increases in their own contributions and substantial improvements in their own pension schemes. I hope, therefore, that the message will go out loud and clear that we want an improvement in private sector pension schemes.
As has been said in the debate, part of the reason why this has become a less controversial subject is the decline in inflation and the introduction of index-linked bonds The criticism of the scale of the index-linked bonds—meaning that it is not possible for pension funds to improve schemes for their employees in the private sector—is not valid. I do not imagine that any fund manager would expect to have only index-linked bonds in his fund. It would be an extraordinary portfolio if it consisted of only one type of index-linked Government stock. However, I hope that provision will be expanded to make it possible for better provision to be made in the private sector.
I want to say a word about inflation and the impact that it has had. In 1971, when the scheme was introduced, it was the Government who decided to go for linking to the price index. The unions said that it should be linked to earnings. In all equity, that is probably what should happen, but at this stage, it would be wrong to make the change. Surely, the comparison between different sections of the community is the comparison with incomes, not necessarily the comparison with prices. In equity—a case could be made for it—the wealth-creating part of the community and the income it receives are surely what pensioners' incomes should be linked to.
That would get over the criticism made in the Scott report about the difficulties that the Government might have, should there be a crisis with sustained high inflation which made it impossible—purely in a mathematical sense—to continue the scheme. It would also be impossible in such circumstances to continue all the other index-linked income in terms of benefits. That is a horrific thought to contemplate, and the country would be in a


severe crisis if that were to happen. It is paradoxical that, in 1971, the unions were pressing for the index to be linked to pay, and not to prices.
I hope that today's debate and the Minister's statement will lead to the whole controversy over index-linked pensions being laid to rest. I hope that the House will have further debates on this subject because we shall face a substantial problem in the future arising from demographic changes. Britain will face an enormous burden in paying pensions to the ageing population. That is not just a problem for pensions, but for geriatric care and in other spheres as well. It is a major problem that will face future Governments and pension managers. The work force and the community must realise that if we are to have the sort of pensions that I and most hon. Members believe the community deserves, they will have to pay a substantial high price for them.
Other countries have already accepted that that should be the case and pay a much greater contribution towards their pension provision than we do. It is part of an educative process. Today's debate and the Scott report will help that. I hope that this will be the end of the great controversy over index-linked pensions and the beginning of the introduction of a pension provision for all sections of the community that will not give rise to the feeling of disenchantment and unfairness that has arisen in the past.

Mr. Nigel Forman: I must be brief because I have a constituency engagement, but I am grateful to you, Mr. Deputy Speaker, for calling me.
The Scott report undoubtedly raises some important matters to which, as the hon. Member for Thornaby (Mr. Wrigglesworth) has said, the House will have to return. Not the least of the reasons why the Scott report is so important is the number of employees involved who find themselves with inflation-proof pensions of one kind or another. That must be stressed. It is prudent and right that those 5½ million or so people should be dealt with as fairly as possible while at the same time being fair to the rest of the community, particularly the taxpayers, as my hon. Friend the Member for Croydon, South (Sir W. Clark) said earlier.
The issue has undoubtedly given rise to a good deal of public concern, especially in the private sector and among the self-employed, where such benefits are not normally available. The disparities which have been brought out in the Scott report and, indeed, in the Megaw report which is also relevant, need no further emphasis from me. No one denies the existence and importance of the problems. The question is how best to deal with them.
To some extent the problems have been caused by the way in which comparability worked over the latter period during which it was in effect—both the general idea of comparability, which, as we saw, was often circular and indeed flawed in that respect, and also particular aspects of it. To mention only two, public sector comparisons were included in comparability exercises and small firms were insufficiently represented in those comparisons. I hope that the Minister now, or on some future occasion, will be able to tell the House something about the Government's attitude to those two aspects, both of which were touched on in the Megaw report.
There is also the underlying problem, as so many hon. Members have mentioned, of the background of inflation, which leads either to ever-rising contributions in an attempt to fund such pensions or an ever-increasing burden upon taxpayers and the private sector to do it another way or perhaps by a mixture of both methods. Clearly, whichever way it is done, the number one aspect of this matter is that the whole problem becomes more manageable as we get on top of the problem of inflation.
It is also well to remember that the whole idea of comparability was introduced into this realm by the Priestley commission in the early 1950s at a time when the inflation rate was—I checked—anything between 1·7 per cent. a year and 3·5 per cent. a year. Indeed, inflation was not significantly higher in the 1960s when so many of the present schemes were first introduced, running at perhaps 5 per cent. or 6 per cent. a year. It is against that background that we must view the then conventional wisdom, which is now somewhat dented in today's conventional wisdom. It is understandable that feelings of injustice and resentment should increase during the recent years of high inflation and deep recession. Therefore, it is important to see the problem against that background.
I should like to endorse some of the remarks that have been made about solutions. I agree with those of my hon. Friends who have stressed that the conquering of inflation is the answer to the problem and to coping with it adequately. However, some increase in contributions will be necessary by public sector employees. I note that in the Armed Forces and the police the total effective contributions are higher than the average contributions for the Civil Service. Therefore, it would be appropriate to move towards the 11 per cent. or 12 per cent. mark that is applicable in both those cases.

Mr. Wrigglesworth: Surely the hon. Gentleman recognises that those in the Armed Forces and the police have substantially better pensions and that is why they pay higher contributions.

Mr. Forman: I recognise that we must look at both sides of the account but most hon. Members would agree that the idea of increasing contributions in real terms should be considered.
The Minister referred to transparency. It would aid public understanding if we were to change to a system that gave gross pay with contributions as clear deductions from pay received. That would do much to improve public understanding and to increase public support for what is, after all, a widespread system. It would put public sector employees on the same footing as everyone else. I am also attracted by the idea—although I am not quite sure how it would work—of a cut-off point, or upper limit to public sector pension receipts. We could deal with the extreme cases and say that the pension concerned should not be higher than the current pay for the equivalent job. That anomaly could be dealt with. At any rate, we could say that the pension should not be higher than a stated rate of hyperinflation.
All those changes would be marginal and involve a modest reform of the system rather than a root and branch change. That must be the right approach. However, the Government should pay more attention to what Megaw called
an informed collective bargaining system


with his various ideas for a pay information board and so on. That is wholly consistent with what we said in our manifesto in 1979. We said:
There should also be more open and informed discussion of the Government's economic objectives …so that there is wider understanding of the consequences of unrealistic bargaining and industrial action.
That applies to both the public and private sectors. We have a good pretext for returning to the subject because it is a matter that should concern the Government more in their wider economic policy.
In conclusion, these problems will diminish as we reduce inflation still further. I pay tribute to the Government's achievement in that respect. I hope that the Government will also pay attention to the vexed and important question of the transferability of occupational pensions in the private sector. Such transferability is long overdue and, as many hon. Members have said, the present situation hinders labour mobility. In addition, there is a strong argument in terms of equity and we should do something about transferability.
With those few provisos, I welcome what the Minister has said and I hope that the Government will proceed on that basis.

Mr. K. J. Woolmer: I declare an interest as the parliamentary adviser to the Inland Revenue Staff Federation. In addition, I apologise to the Minister if, for reasons that he will understand, I have to leave the Chamber before the final speeches in this important debate.
First, I shall address my remarks to the specific question of public sector pensions. Secondly, I shall express some thoughts about the broader question that has gradually come to dominate the debate. It is clear that pensions are a vital part of people's lives and are regarded as such by those in both the public and private sectors.
If pensions fail to keep up with inflation—whether we call that indexing pensions or not—in stark terms it means that pensioners suffer falling living standards. Instead of talking about indexing or otherwise, we should reduce the argument to whether we want pensioners to suffer falling living standards or to sustain their already reduced living standards which result from retirement.
My next general observation is that pensioners cannot fight to protect themselves once they have retired, as people at work can do. If we in Parliament and through Governments do not take steps to set up pension systems that help to protect pensioners, they cannot protect themselves by industrial action. Inflation has to be brought well down if pensioners are not to have the fear of falling living standards, and I say that as an Opposition Member. Many people tend to think that inflation does not matter, but it does. People in work need to remind themselves that while in work they can battle for pay rises, but that once people have retired that option is no longer open to them.
If someone is unemployed, he is unable to think about getting a pension on top of the State pension. If the battle to beat inflation is being won at the cost of 4 million unemployed, we must remember that the 4 million unemployed will not be able to look forward to a high occupational pension, index-linked or not, because they have no jobs. The important question is not whether we want a low rate of inflation—obviously everyone

does—but how it can be achieved at an acceptable cost in terms of unemployment and the effect on the people concerned.
My right hon. Friend the Member for Swansea, West (Mr. Williams) rightly said that we must not forget the context in which the debate on index linking got going again about two years ago. There was the enormous personal involvement of the Prime Minister in an attack upon the Civil Service. When we come to the difficult question of negotiating and developing the changes towards which the Government are moving, it must be done only in an atmosphere of trust. It must be seen to be not another attack on the Civil Service but an attempt to get openness and fairness into the system. I think that that has been the broad trend of the contributions from both sides of the House today. That was not the atmosphere M which the Scott committee began its deliberations. Now, thank goodness, many months afterwards, we are able to make a calmer assessment of the position.
It should be made clear that the Scott report said that civil servants contribute about 8 per cent. of their pay towards their pensions and benefits. That is double the figure for other employees. The committee said that protecting pensions against inflation is a good and proper thing and that it should be the aim of Governments. It said that public sector pensions are better protected but that the answer is not to destroy the protection of public sector pensioners; it is to improve the position of private sector pensioners. Those were the broad conclusions of the committee.
It should be remembered that public sector pensioners—certainly civil servants—pay about 50 per cent. of the cost of their pension schemes, and that is significantly more than the average in the private sector. Secondly, the level of pensions obtained by public sector workers when they retire is very modest. Thirdly, any changes to be brought forward must be seen not as attacks on the Civil Service but as agreed and fair to all concerned. Any changes should be brought about by proper negotiation and not rushed through for any purpose. We must achieve a fair and reasonable arrangement.
If contributions were to be made explicit, with both pay and contributions rising, that must not be attacked as if large pay rises were being given to public sector workers and civil servants. It must not be used as another whipping boy to attack public sector workers. I noted the Minister' s remarks that it was to be the subject of consultation and discussion rather than a quick decision. I remind the House of the atmosphere in which the Scott committee first sat. It would not be surprising if public sector workers were afraid that making their contributions explicit, accompanied by an apparently significant pay rise, would be misinterpreted and used to attack them.
If contributions are to be raised—I use the word "if" advisedly because the report shows evidence that contributions in many sectors are already ample—I hope that in the negotiations the Minister will remember that there is an enormous variation in the percentage of the costs borne by different public sector workers. During the past two years they have borne the brunt of the Government's attempt, through what is virtually a pay policy, to reduce inflation by holding down public sector pay. It appears that there will be a third year of reduced living standards for civil servants and public sector workers. They will not take kindly to any suggestion that


their living standards should be further eroded by an attempt to claw back money for a new system of pension contributions.
In the brief time remaining to me, I shall return to the question of all pensions, whether public or private. My right hon. Friend the Member for Manchester, Openshaw (Mr. Morris) said that, ironically, many of those most vociferous in business circles, and sometimes in politics, were often those who ensured that they received a good pension. It ill becomes those at the top with good pension schemes, often negotiated by themselves, to criticise those who seek simply to protect themselves against inflation.
We are discussing the fairness of the public sector compared with the private sector. A report was published this week by the Occupational Pensions Board, Command No. 8649. I trust that it will be the subject of a full debate in the House. The Minister's written statement earlier this week was wholly inadequate and gives little comfort to those in the private sector. In no way will those employed in the private sector regard as fair the protection of the pensions of those employed in the public sector while pensions in the private sector remain in a state of chaos, unfair and, frankly, not understood by employees. They do not protect people against inflation. They are grossly unfair to the point of indecency for those who seek to change jobs. They are usually so complex that the average person simply does not understand his pension rights and how they will be affected by inflation during the 30 or 40 years that he must work before he retires.
The report of the Occupational Pensions Board, which is an essential other side of the coin to today's debate, points out all the inadequacies but lamely and tamely ends by saying that it does not recommend legislation but believes that we should seek to pressurise and advise the private sector pension schemes to make improvements.
We may resolve the details of getting a more open and fair system in the public sector as a result of the Scott report, but we shall not get public acceptance of that fairness unless we deal with the private sector schemes over the next few years. Without that, in two or three years, if there is another bout of inflation, people in the private sector will feel the same grievance and there will be the same whipping up of discontent by politicians and the media. We shall not solve anything, but there will be further problems.
I ask the Minister to give three assurances. The first is about public sector pensions. Will he give the assurance that he did not give in his speech—that the Government are committed to maintaining index linking? Secondly, will he give an assurance that the changes in openness to which he has alluded and any review of the adequacy of contributions will be done with the objective of having a fairer, open system rather than one that is seen to penalise the civil servants in an atmosphere of criticism of them?
Thirdly, although the Minister himself cannot give me the assurance that I seek, will he draw to the attention of the Secretary of State for Social Services the vital relationship between the report of the Occupational Pensions Board and private sector pensions and the need for the House to debate fully that side of the coin so that those in the private sector who legitimately wish their pension schemes to be improved can be protected and can feel that they will get a fair deal, just as the public sector workers want a fair deal?

Mr. Chris Patten: The House always listens to the hon. Member for Batley and Morley (Mr. Woolmer) with much respect and interest. I always think of him as the acceptable face of the Labour Party. I do not want to damage irredeemably his chances in Batley and Morley, but I must tell him that we always listen to his commonsense and intelligent speeches with considerable interest. His speech was typical of the debate so far.
The debate was opened by a good speech by my hon. Friend the Minister of State. My compliment to him may be lethal, but I shall make it for what it is worth. His contribution to the debate was outstanding. I listened with interest to the speeches made by my hon. Friends the Members for Carshalton (Mr. Forman) and Brentwood and Ongar (Mr. McCrindle)—the latter as sensible and informed as his contributions to such discussions invariably are.
One of the distinguishing characteristics of the debate was the bipartisan argument by the right hon. Member for Swansea, West (Mr. Williams). I think that we can excuse all the adjectives. The right hon. Gentleman had 20 months to think of them. I understand his frustration at not being able to deliver them before. However, by and large he seemed to say that the Labour Front Bench endorsed my hon. Friend's speech and his sentiments. It will be extremely welcome to my hon. Friend and the rest of us that the Labour Party is right behind the Treasury line.
The other distinguishing characteristic of the debate was the conversion of my hon. Friend the Member for Croydon, South (Sir W. Clark) to the principle of index linking. I am sorry that he is not here to hear my glittering tribute to him. Although he had reservations about how far it should run, he put himself squarely behind the principle of index linking, which shows an intellectual flexibility that perhaps we should all at times follow. We may sometimes tend to be too ideologically hidebound.
Even though the House is not packed today, few issues in past years have raised the political temperature as much as the question of public service pensions and index linking. The heat generated is the result of our economic decline over the past decade or two and of the fourfold increase in prices over the past decade. Economic failure on that scale has profound social and political consequences.
Civil servants have for long been the butt of music hall jokes and at times the butt, too, of ill-natured resentment. Those who man the bureaucracy that the rest of us will should not perhaps expect to win popularity contests, but it is disturbing that the relationship between the workers in the State and in the private sectors grows increasingly and damagingly bitter. They glower at each other over the barricades of comparability studies, index-linked pensions and relative—I repeat, "relative"—job security.
My hon. Friend the Member for Croydon, South talked about job security in the Civil Service. In my constituency over the past three or four years, I have seen a 10 per cent. cut in the number of civil servants, and admittedly more in the private sector. I hope that in the future we shall not see too many more jobs lost in the private sector. That is the job security I am after.
The situation is made worse by attacks on the notion of public service. Although there are not many militants in the Civil Service, those militants working for the State have been seeing it as the best way to prosecute the class


war. They have tried to politicise the idea of public service. The aim is made easier by the crude way in which the dependence of the public sector on the wealth-creating private sector is occasionally portrayed. Sir Bernard Scott knows a great deal more about wealth creation in the private sector than the rest of us put together.
It is unfortunate when people talk of the State as a gigantic incubus on the rest of society, as though its services provided no benefits and were a brake on progress. In a mixed economy, one must establish financial and philosophical limits on the State's activities, but much of what the State does is what we determine that it should do to improve the quality of our lives individually and collectively. Much of what it does also makes our economy more efficient, not less.
During the Falklands campaign, some of my constituents for the first time discovered what the Ministry of Defence civil servants in the city of Bath did. I hope that that magnificent work will have put to flight some of the prejudices about their activities.
I am a Tory, not a nineteenth century Liberal—a term that has come into recent use thanks to my right hon. Friend the Secretary of State for Defence—and as such I have no hang-ups about the role of the State. There is no antithesis between the State and the individual. That is another reason, apart from the fact that I am reluctant to see the community divided unnecessarily, why I do not care for some of the criticism, that has occasionally bordered on abuse, of civil servants. That has more to do with Poujadism than Conservatism.
It is important to set the argument about indexing in that broader context before I deal with some misconceptions and suggest some improvements. The first misconception, referred to by my hon. Friend the Member for Brentwood and Ongar, is that indexing replaced something that was satisfactory. That is not true, as can be seen from the Second Reading debate on the Pensions (Increase) Act 1971.
I am sorry that my hon. Friend the Member for Croydon, South, who has returned to his place, missed the glittering compliment that I paid to him earlier—

Sir William Clark: My hon. Friend could repeat it.

Mr. Patten: —but he can read it in Hansard. I shall try to manoeuvre my peroration so that I can repeat the compliment.
The Second Reading debate began with a speech by the Parliamentary Secretary to the late and lamented Civil Service Department. He described the Bill as providing
a far-reaching and overdue reform".
The Bill put pensions on an equitable footing, thus ending anomaly and inequity. The Parliamentary Secretary went on:
To those whose first reaction is that we are doing too much, I would at this stage say that the Government believe in being a good employer.
That is an admirable sentiment. He went on to say that a good pension system is one of the compensations of public service. Again, I agree with that. He said that the Bill spared public pensioners
the crueller burden of … lobbying to preserve their living standards.
He said that it would halt the downward escalator in public pensions.
The Parliamentary Secretary, who is now Secretary of State for Transport, was followed by the then Financial Secretary to the Treasury, who said that the Bill would

honour the pledge given by the Conservative Party in Opposition two years before. Long-delayed justice was just around the corner. He said that the Bill was a major milestone in the long and chequered history of public service pensions. He concluded:
Our citizens will gladly shoulder the cost of meeting this obligation to those whose lives have been given to the public service."—[Official Report, 25 May 1971; Vol. 818, c. 239℃93.]
When the Minister, who is now the Secretary of State for Industry, sat down, the House proceeded, without a Division on the Bill to debate the imposition of purchase tax on yoghurt.
The previous system of adjusting public service pensions was arbitrary, anomalous and unfair. It encouraged the least attractive pressure group politics and we should have nothing to do with it in future.
Another misconception is that we are talking only about the Civil Service. The figures were given in the February debate on that subject and again today by my hon. Friend the Minister of those who are affected, including the Armed Forces, nurses, firemen, postmen and policemen—even the policemen who heckled my right hon. Friend the Home Secretary the other day. The vast majority of those public servants receive modest pensions. Only a few public servants receive king's ransom pensions. I am surprised that some of my hon. Friends say that we should consider limiting high pensions. It does not square with what they say about high tax rates and reward for effort. There are some surprising egalitarians on this issue. A more reasonable target for their ire would be the remarkable rapidity with which some highly paid public servants land Victoria plum jobs not unrelated to their activities in the public service within a short time of retiring. Another target are former Commissioners of Police of the Metropolis who have hardly retired before they are writing their memoirs in the Sunday newspapers about sensitive matters that have just been their responsibility in the public domain. I shall not go any further down that rather alluring path. I merely offer those as more sensible targets for the concern and consternation of the House.
The most important misconception of all when discussing this issue is that it is indexing that is responsible for the increased cost of public service pensions. It is inflation that is responsible. When we consider the rise in prices since the 1970s it is inconceivable, as my hon. Friend the Minister said during the February debate, that we should not have increased pensions substantially in the intervening decade. The problem arises from inflation and not indexing.
Against that background the Scott report is right to reject the idea of abandoning indexing. It is equally right to say that we must examine the contributions made both directly and indirectly to ensure that they reflect as closely as possible the costs and benefits of public service pensions. I am delighted with 'what my hon. Friend had to say about that at the beginning of the debate.
The remarks set out in the Megaw report on this subject are exceptionally wise. It is clearly unfair to everybody,, not least civil servants, when we do not know precisely what contribution they are making to their pensions. I am delighted that my hon. Friend has entered into a commitment on that I am sure that the Minister will want to make a statement to a much fuller House, but I am sure also that we shall want at some stage to hear from him a


recommitment of the Government to the central recommendations of the Scott report on future indexing in the public service.
If we were ever to contemplate going further—on this issue I rather agree with my hon. Friend the Member for Brentwood and Ongar—I think that only one limitation would be reasonable, and that would be to relate the inflation rate against which we were prepared to protect and guarantee pensions to the inflation rate which is assumed by the Government Actuary in making his valuation.
When looking to the future and not retrospectively, it does not seem unreasonable that the Government Actuary's views about the coming inflation rate might at least be related, if we felt obliged to impose a limit, to the inflation rate against which we were prepared to protect. That is surely the only way in which we can ever work towards a limitation. But on balance, I think that the present arrangement is more or less satisfactory.

Mr. Nicholas Baker: Perhaps my hon. Friend has misrepresented the argument that pensions at the top level might be traded off against egalitarianism. I have doubts about how that would work but it is derived from the idea that in a society which is undergoing inflation and economic decline we should try, God help us, to spread the misery equally. Against that background there is perhaps some justification and an element of fairness in saying that pensioners at the highest level should take a share as well.

Mr. Patten: My hon. Friend will appreciate that those in receipt of larger pensions pay tax. I do not see how my hon. Friend's proposition is any different from that which one hears periodically from Labour Members whenever the judges, senior civil servants and senior public officials are awarded a pay increase. It is suggested that it is wrong that someone should be given an increase of, say, 4 per cent. when he is already earning £30,000. It is difficult to argue that those with talent and ability should, in addition to meeting the burden of the tax system, make the further gestures that my hon. Friend has suggested in the interests of fairness. I am rather in favour of fairness—in politics it would be difficult to get elected if one were not—but I think that my hon. Friend presses the point a little too far.
My final point relates to an earlier comment of my hon. Friend the Member for Carshalton (Mr. Forman). I believe that we should take advantage of the Scott and Megaw reports to try to rescue the whole notion of public service in this country. We need new institutional arrangements for public sector pay which will inspire confidence because they are seen to be stable and fair. Changes on that front, plus a new commitment on indexed pensions, could be seen as part of a wider bargain covering no-strike agreements for some core workers in the public sector as well as enforceable arbitration in some areas.
In recent years, all Governments after two or three years of office have seen the existing pay bargaining machinery in the public sector come rattling down around their ears. With a little imagination and political generosity, the Government now have the opportunity to pick up the whole shambles and to set it down on more secure and sensible foundations. I can think of no one better able to do that than my hon. Friend the Minister of State.
I repeat that I should like to see public sector pensions form part of a new settlement on pay and related matters in the public sector. It used to be recognised as one of the obligations that the State felt towards those who worked for it, often for less than the market would bear, that public service pensions should be indexed. It was a sign that we regarded the public service as more than a job category and I do not believe that it is wholly romantic to wish to return to that state of affairs. The only alternative seems to be, rather alarmingly, to play into the hands of the militants and to destroy the idea of public service once and for all, which would be damaging for all of us.

Mr. Richard Wainwright: The dabate has included admirable speeches, such as that of the hon. Member for Bath (Mr. Patten) and has benefited greatly from being one of the very rare occasions when the House can debate the conditions of employment throughout the whole public service. All too often, the government of the country and the procedures of the House are muddled due to the deliberate and woeful fragmentation of pay determination procedures throughout the public service. Thus, there is discrimination between, for example, the settlement for police and the settlement proposed for the Health Service workers. The Liberal Party has long campaigned, and pressed in its evidence to Megaw, for a common set of pay determination procedures throughout the public service or, at any rate, throughout the centrally organised public service.
I am glad that the debate has not continued in the very low key that the Minister—naturally, in order to spare the Prime Minister embarrassment—tried to adopt at the beginning. In doing so, he was led to make absurdly complacent remarks about the possibilities for inflation rates in the future, as though the present most welcome reducing rate would continue almost indefinitely. As we all know, because that reduction is simply the result of a deliberately contrived and savage deflation, not of any improvement in our structures and economic framework, the signs are ominous that, after falling for a while next year, the rate of inflation will accelerate. So much capacity has been put out of action and there has been so much contraction on the supply side that, as soon as there is a recovery in demand, there will be shortages of both materials and skills. Moreover, the unions are naturally waiting for the right climate to take their revenge for the way in which they have been treated in the past three years. It is, therefore, most unwise to suggest that the problem of pensions and inflation has become much smaller because, it is alleged, we can look forward to very low rates of inflation in the future. We are enjoying only a temporary drop in the inflation rate.
I am sorry that a Minister of the standing of the hon. Member for Brentford and Isleworth (Mr. Hayhoe) should have obeyed what appears to be the stern command from Downing Street that every Minister must take part in the campaign to scare the British people about the alleged burden of the Welfare State. The Minister referred to the ever-growing burden of the elderly. We should count our blessings. One is that, whereas for about 30 years we have had an explosive growth in the elderly population, who have to be properly looked after, this year we are entering a period when a sparse generation, born after the First World War, enters retirement. We can look forward to fewer people entering retirement for about the next 20


years. It is time that the Government stopped trying to scare the British people with talk of an ever-increasing burden. I acknowledge, thankfully, that old people live longer, and will no doubt continue to do so while we maintain our admirable National Health Service.
The Scott report and Megaw's comments on it are welcomed by the Liberal Party. I am delighted that the Minister spoke favourably about the proposal to make Civil Service pensions contributory, because the present system obscures public understanding and is responsible, as has been pointed out, for a great deal of misunderstanding that could have been avoided.
I should like to refer to one or two details. Megaw fell from its general standard of making rigorous proposals when it dealt with the vexed question of the Government Actuary's computations. Megaw says that the Government Actuary
should be required to discuss his assumptions with the actuarial profession outside government and with economic and commercial opinion.
Those are admirable sentiments but they seem to be hopelessly vague. They could be satisfied by the most routine, dismissive conversations if the Government Actuary so wished.
The Liberal Party would like to see a standing commission as independent as the judiciary—preferably appointed by an electoral college than by the Government—as the arbitration court for all aspects of public service pay. We believe that the Government Actuary should have to expose and defend his proposals before such an independent standing commission. With the greatest respect to the Government Actuary's integrity and professional skill, it seems that his calculations and prophesies have gone astray recently. We should like to tighten up the Megaw committee's proposal, and ensure that in future the Government Actuary's work is subject to the most rigorous examination.
It is important to bring the private sector to the same standard of protection against inflation.
That brings us to the question of the inequitable freezing of private pensions and their woeful lack of transferability. The Minister was weak on that point. As Conservative Members have said, it is hypocrisy for the Government simply to admonish those responsible for private sector pension schemes and to say that they must get on, establish transferability and get rid of the disgraceful incidence of pensions being frozen at a nugatory sum, which bears no relation to our inflated currency in a person's late middle life.
A view held widely in the pensions industry and among actuaries is that the necessary reform must be assisted by the Government. It is no good expecting the private sector, the pension and insurance companies, to enact this urgent reform without Government assistance to cut the many Gordian knots. For years some of the best brains in the actuarial profession, with a strong professional sense of duty, have been engaged in trying to improve transferability and to get rid of the disgraceful inequities. They have come up against Gordian knots which only the Government can cut.
I hope that the Minister will acknowledge that, in his admirable wish to bring the private sector more closely into line with the public pension system, the Government must stand ready to assist the industry to solve the vexed questions of transferability and inadequate frozen pensions.
With those qualifications, I welcome the Minister's statement. I hope that the Government firm up their attitude to making the Civil Service pension scheme contributory. When that is done, the British public, with their sense of fairness, will acknowledge that conditions for civil servants are nothing more than they deserve.

Sir Brandon Whys Williams: The House should congratulate Sir Bernard Scott on his report. It is courageous and perceptive and raises a number of points of which we must take note. It compares extremely favourably with the Brimelow report which followed a few months later and which is relatively spineless and lacking in grasp of the underlying moral principles involved.
The public are concerned about the provision for retirement as a whole, and particularly about occupational pension schemes. The provisions under the occupational pension schemes must be considered in the context of the transfer of resources between social groups. The major difficulty is the depreciation of the currency.
I warmly congratulate my right hon. Friends on their success in bringing down the rate at which the paper currency is depreciating to about 5 per cent. and, we hope, to even less in the coining year; but we must recognise that the pound is still falling at about twice the real rate of interest. It is not possible to make long-term contracts on the basis of the paper currency without using some other form of guarantee to protect the parties to the contracts.
A person starting employment today and joining an occupational pension scheme may still be enjoying the benefit of that contract in 60 years' time. Even the mast ambitious person, hoping to stabilise our paper currency, must realise that other guarantees are needed because of the long span of time over which the contracts stretch.
Inflation is certainly a serious matter, but there are other problems. There is no doubt that the public are concerned about the supervision and operation of the trustees of private and nationalised industry funds who have enormous resources and great power over the economy as investors. They also have substantial obligations to the beneficiaries which are not always clearly defined.
In the private sector, the members feel that they are paying good money into the scheme and getting bad money out. They a:-e uncertain about the rights to uprating after the award of the pension and concerned about the lack of protection for early leavers. That has been a particular hobby of mine since my maiden speech in the House in 1968 on the subject of the transferability of pension rights.
In the public sector, it is obvious that the lack of clarity as to which schemes are contributory and which are noncontributory and the amount that the employers—that is, I suppose, the taxpayers—and the employees put in and whether the systems are based on conventional funding principles—on repartition or on some other basis—causes great anxiety and confusion, as we saw from the reaction of the police to the perfectly proper suggestion that they should contribute more to their retirement provision. Moreover, the application of the retail prices index Io public sector pensions is having a divisive and dangerous effect. It has created a sort of Shangri-la, in which public sector pensioners are able to draw apart from the rest of society and live in a protected world which seems to have little to do with reality or with the difficulties that are faced by the rest of the population. I shall come back to indexation and the type of index in a moment.
It is important for the Government to establish the principles on which occupational pension schemes are founded in both the public and private sectors, so as to minimise the need for discretion in the operation of these schemes in future, and to make them proof against inflation in a manner which is realistic and not impossible of achievement in the long run.
I shall summarise briefly the four types of retirement benefit. First, there are the national insurance pensions and supplementary benefits for those of pension age. They constitute a basic income guarantee on which many people depend in retirement, because their occupational pension provision is so small.
Secondly, there is the obligatory savings element in private and public sector schemes, which produces the money purchase annuity. I am anxious to distinguish between the obligatory contributions that employers and employees make and the provision of discretionary and fringe benefits which are also important in retirement provision.
Thirdly, there are personal savings of all kinds, some of them flowing into tax-assisted systems, such as building societies, and other investment funds which have tax advantages. They are particularly important for the self-employed.
Fourthly, there are employers' special terms of contract, particularly the final salary bonus inducement, which is often confused with employers' other statutory obligations to employees, with fatal results.
We need to decide what are the appropriate tax concessions that the Government should promote to assist retirement provision, and what are the statutory obligations of the various parties in the private sector.
On national insurance benefits and supplementary benefits, the time has come to recognise that national insurance has become a complete farce. There is no relationship between entitlement to benefits and the contributions record. National insurance and supplementary benefits for people of retirement age should be amalgamated and turned into a basic income guarantee—what I call "the BIG idea"—without counting contributions or applying earnings rules. We should underwrite the living standards of elderly people by a rudimentary redistribution of income from workers to the old to provide them with a secure minumum standard of life.
There is an obligatory savings element in the public and private occupational schemes. A statutory deferment of pay is made to provide an earnings-related retirement income, or, in some cases, a lump sum is payable at a defined age as part of the options in the scheme.
If we accept that the occupational pension entitlement is a form of deferred pay, what are the principles on which that pay is to be administered during the period in which it is withheld from the employee for his own ultimate benefit? I have come to the clear conclusion that the Social Security Pensions Act 1975 does not provide a satisfactory basis for the control of such funds and will have to be significantly revised as soon as possible.
In the public and private sector schemes, the employee's and employer's statutory contributions should be clearly identifiable. The personal entitlement as it accrues should be possible to determine and be seen to be secure. Hence, the private scheme should be fully funded

with regard to the career earnings-related contributions of the employees. Employers who contract out must be prepared to give that guarantee.
I realise that that will not be possible immediately in many schemes which are not fully funded. However, I feel a sense of considerable anxiety, particularly in the current economic situation, because there are many occupational pension schemes which cannot at present meet their commitments. The trustees should be advised to correct that deficiency as quickly as possible. I emphasise that the money purchase element in the build-up of the employee's entitlement can legitimately be separated from the fringe benefits or final salary commitment which the employer normally includes in private schemes according, to a great extent, to his own discretion.
I know that it is difficult for private schemes to give clarity and certainty to the employees, but it is not impossible, and we should hasten to that objective. We must distinguish between the obligatory savings element and the discretionary bonus which is included in almost all occupational schemes. The rules that we apply to the different elements can, quite properly, differ.
The advantage of the transparency of occupational pension schemes is the easy handling of transfers between one fund and another. I have said many times that the preservation of the employee's benefit in the hands of the trustees of his previous employer is not enough. We must allow employees moving between one employment and another to remove their entitlement entirely from the first employer's fund. They should be able, if they wish, to add it to their new employer's fund, or alternatively, to transfer it to one of the tax-approved self-employment schemes, which should be freely accessible to anyone who wishes to put his employment savings into retirement provision on a reasonable basis.
Early retirement is a subject which every scheme will now have to tackle and to which it will have to decide its attitude for future years. For that matter, late retirement must be considered too. I do not insist that we should look only at early retirement. The way in which these options are dealt with in occupational schemes must be founded on actuarial principles, not on the discretion of the employer or the trust's management.
In the public sector the so-called non-contributory schemes should be opened up to scrutiny and the employee's contribution clearly defined. I warmly welcome my hon. Friend's suggestion that all the public sector schemes should be put on a contributory basis. The finance of such schemes should be transparent and comprehensible. There is no such thing as a free lunch, and there is no such thing as a non-contributory pension scheme. There are only schemes where it is impossible to determine precisely what element of pay is being retained for the employee's ultimate benefit and what is being handed to him as the years go by. I am sure that transparency will be welcomed by the public service, and I hope that the Government will press on as quickly as possible with clarifying the mutual obligations of the taxpayers and the employees in all public sector schemes.
I shall touch briefly on some of the topical issues that are important in relation to the management of occupational pension funds. First, it is important that they should be put on to a unisex basis. It is not right that there should be separate treatment of men and women in such schemes. However, one immediately runs into the problem of the different longevity of the sexes. Men and


women may have precisely the same earnings records and work for precisely the same number of years—perhaps for the same employer—yet, on the date of awarding their pension benefit when they retire, the employer will obviously have different commitments, because the female may reasonably be expected to live for some years longer than the male employee.
That problem can be, and often is, remedied—perhaps unconsciously—by awarding a benefit to the employee's surviving spouse. For the most part, men will leave widows behind, but retired women are relatively unlikely to leave widowers behind. Therefore, what one sex gains on the swings it loses on the roundabouts. An adjustment on these lines is possible in actuarial terms that would put pensions on a unisex basis. I strongly recommend that that should be insisted upon.
I turn to the age of retirement. I am sorry that I was forced to leave the Social Services Select Committee just as it was beginning to consider the drafts of its important report, which is expected within a few weeks. Where early retirement is a feature, the occupational fund should adjust its payments and honour its obligations on a strictly actuarial basis. A discretionary element should not normally come into it. The actuarial basis is fair to the employee and is also fair to the other employees who have claims on the same fund. In the meantime, the nation as a whole should be responsible for maintaining a basic income guarantee for those who, for one reason or another, are obliged to accept early retirement. We owe them a minimum income in retirement if they are forced to withdraw early from employment because of personal circumstances or the economic circumstances of today just as we owe it to those who remain in work until the normal retirement age.
Indexation is by far the most important of the topical issues that represent problems for the occupational pension movement. We tend to use the word "indexation" without discriminating between the different types of index that can be applied. There are malignant and benign indices. A malignant index is one which is likely, over the passage of time, to destroy one or other of the partners to the transaction. Either the borrower or the lender is likely to be destroyed by the application of a malignant index. The retail prices index is malignant, because it is beyond the control of the parties and may vary unpredictably in the course of time. For example, we do not know what will happen to energy prices and we cannot predict what a future Government might do to the RPI through changes in taxation. It is a false protection to either of the parties to adopt indexation on the basis of the RPI, because no one can undertake to fulfil such obligations over the course of time. Not even the taxpayer can safely undertake to do that.
Therefore, we must look for a benign index that is fair to both parties and is likely to remain so over the passage of time. The public sector should now abandon indexation through the RPI for its pensioners and adopt the gross national product instead. The resources available to honour the taxpayers' commitment to those in the public sector who are now in retirement are found in the national economy and its achievements. We cannot, and should not, offer more than that. Pensioners should not be put into a separate preserve outside the rest of the community; they should travel along with the rest of us, sharing the

economy's ups and downs. That would end the widespread resentment about the way in which public sector pensioners now appear to belong to a privileged caste.
Scott was right to say that we must seek to bring the private sector schemes up to the level of the State schemes and not try to reduce the State schemes to what private schemes can manage. Private schemes cannot and should not be asked to meet the RPI, but they must have a realistic target—a benign index—for the relationship between the employees and the fund over the passage of time.
The minimum guarantee—that is, the money purchase or career earnings record of the employee—should also be related to the GNP in the private sector. If the trust fund is prudent—investment is now possible in Government-indexed stocks—that commitment is possible. What I say about the RPI applies also to my opinion about the Government's issues of indexed stocks. I think it is a most unwise commitment for the taxpayer to make. The taxpayer should undertake to give a share of the economy to the investor year by year which is related to its performance. There, too, the Government ought to be issuing GNP-related stocks, not RPI-related stocks; but that is a separate issue.
With regard to personal saving schemes, it is a good thing that indexed Government bonds are available, for example, to assist n the provision of schemes for the self-employed. They make it possible for the private sector to give reliable guarantees over time, and they should be encouraged. Those who wish to leave an occupational scheme and to put their accrued assets into a self-employed type scheme should have no restrictions on their doing so, provided that the elementary precaution is taken of preventing tax frauds and insincere investment stunts simply to take advantage of the tax concessions.
As to the employer's special terms of contract, it seems to me that in regard to the final salary bonus inducement and the other fringe benefits in private sector schemes, particularly for very senior employees of all kinds, there should be some sort of statutory protection for the employee over the passage of time. The employee must know what his rights are if the fund is operated in a way which does not seem to him to be in accordance with fair play. In private or occupational schemes it is the fund's performance which should be the measure of the employer's responsibility.
In the public sector, the final salary component of the occupational pensioner's entitlement should once again be the GNP; but in the private sector all the employer can offer is a guarantee that the fund will be managed properly and prudently and that the employees will have the benefit of its performance, whatever it may be.
I have sought briefly to look for the moral principles underlying the relationships between the parties. The relationships between the different age groups in a property-owning democracy should be founded on mutual respect for property rights and the acceptance of established moral obligations. Once the basic rules have been laid down and have become the foundation of normal practice, the room for discretionary interference by employers, trustees, beneficiaries and, most particularly, by politicians, should be reduced to vanishing point.

Mr. Deputy Speaker(Mr. Bernard Weatherill): Order. This has been an interesting and valuable debate and I am anxious that everyone who wishes to take part should be able to do so. I remind the House that the debate


has to end at 2.30 pm and that the Minister will wish to reply at about 2.15 pm. I hope that the two remaining speakers will bear that in mind.

Mr. Alfred Dubs: I declare an interest as parliamentary adviser to the Society of Civil and Public Servants.
One theme that has run through the debate has been that pensioners do not cause inflation and that they are not responsible for the roots of the inflation that we have had in recent years. Therefore, I agree with the view of those hon. Members who have advocated that we should move in the direction of inflation proofing of all pensions, preferably by index linking.
I was interested in the comment of the hon. Member for Kensington (Sir B. Rhys Williams) that linkage should preferably be with GNP rather than with RPI. If we move to the position suggested by some Conservative Members of having zero inflation—which I believe to be most unlikely—and if that were to coincide with a small rate of economic growth, clearly pensioners would become increasingly disadvantaged relative to earners if the linkage with the RPI remained.
In fairness to pensioners, we should say that if there was economic growth and a low rate of inflation their pensions should reflect the rate of economic growth. On the other hand, if we had no economic growth but a fairly high rate of inflation, it would be wrong for any pensioner to have a lower living standard. I am uncertain about whether we should move towards GNP or RPI. I should like the relationship to be with whichever was the more favourable to pensioners.

Sir William Clark: The hon. Gentleman wants the best of both worlds.

Mr. Dubs: I must tell Conservative Members that that policy applied to basic pensions for many years until the Government reneged on it.
On a more encouraging note, I listened carefully to what the Minister said and took comfort from his views on index linking of pensions in the public sector. Although he hedged it about a little, I hope that his views represented a clear statement of Government policy and that index linking of public sector pensions will no longer be a matter of party political controversy.
The Minister made a rather puzzling statement when he said that pensions represented a transfer of income between generations. I am bound to take issue with that. The level of pensions as determined represents a transfer of resources within one generation rather than a transfer of income between generations. If we decided today that all pensions should be increased, that would represent a transfer of resources from earners to pensioners rather than a transfer of income between generations. However, that may be more a theoretical rather than a practical point.
The Minister asked for comments about making Civil Service pensions positively and explicitly contributory. There is much to be said for that. It would increase the public's understanding of the way in which Civil Service pensions operate, provided that the transfer from the present arrangement to the possible new arrangement is

not to the disadvantage of civil servants and does not encourage the press or public to feel that civil servants pay has thereby been increased.
I wish to make two specific points. The first, mentioned by previous speakers, is the difficulty of transferring from job to job from the private to the public sector, and vice versa, because of the different nature of pension arrangements pertaining to the two sectors. Many years ago the transfer from the private sector to the public sector meant a loss of accrued pension rights of 16 years down to six years. That reflected the different nature of the two pension schemes. It was, therefore, welcome to find that when I moved from the public sector to the House—which has a public sector scheme—the transition was easy.
One point that has come out clearly in the debate is that additional to anything that we do about public sector pensions is the need to examine transferability and the whole range of pensions. There is a serious impediment to job transfer in the loss that one must suffer when moving between the private and public sectors, although not within the public sector itself. I agree with the views of other hon. Members that it may be too difficult for the private sector schemes to adjust accordingly. I look to a lead from the Government on how increased mobility can be achieved.
Another difficulty about some private sector schemes compared with public sector schemes is that if an individual in a private sector scheme loses his job he has no protection for his pension against inflation between the date of losing his job and the date when his retirement would have begun and he would have received his pension. There is another form of linkage in most public sector and private sector schemes while one is working, in that the pension is linked to the salary in the last few years of work. Therefore, with increasing unemployment there is an element of unfairness to members of private sector schemes. If they lose their jobs, they suffer harshly.
I should have thought that it would be right to ask the Government to listen to the debate not only as regards public sector pensions but as regards the overlap between the public sector and the private sector, the difficulties of mobility and the other problems.
Another matter that has not been referred to is part-time employees. The Minister said that there was a range of different public sector pension schemes. Some—I refer particularly to the one covering local government employees—do not allow part-time employees to participate in superannuation or pension schemes. That is an anomaly which should be put right.
At least 10 years ago there was an agreement in principle that public sector workers who were part-time employees should move towards being covered by pension schemes. It took until the autumn of 1980 for the detailed regulations to be drafted. They were ready to be signed by the Secretary of State for the Environment. They would have allowed part-time employees who worked for at least 15 hours a week to join the scheme covering local government workers. There was a provision to backdate entry to April 1974.
In July 1980 the Association of County Councils wrote to the Secretary of State asking him to delay implementing the regulation covering part-time employees on the ground of cost. The association is represented on the United Kingdom steering committee for superannuation, which is the employers' side of the joint consultative machinery. The Secretary of State took note of the views of the association, although the steering committee all along had


been in favour of covering part-time employees. The Secretary of State said that he would delay the decision until the Government had decided their attitude to the Scott report. Now that we have had a statement from the Minister about the Government's attitude to that report, it is right that we should ask for a further statement about the Government's intentions on part-time employees in the public sector who are not covered by a pension scheme.

Mr. John G. Blackburn: I declare an interest, in that I am the parliamentary adviser to the National Association of Retired Police Officers, which covers the gamut of chief constables to constables across England and Wales.
I welcome the opportunity that has been presented to the House to debate the report, particularly because most of the prompting over the past 18 months has come from Conservative Members. On this occasion my gallant colleague, my hon. Friend the Member for Croydon, South (Sir W. Clark) has led the battle for the debate today.
I pay a warm and generous tribute to my hon. Friend the Minister. He has given the House and pensioners throughout the country a clear understanding of the Government's intentions on the Scott report. The Minister has honourably said that he is prepared to consider further representations before coming to a final decision. There is broad acceptance of the fact that the disparity of treatment between the public and private sectors should be harmonised by improving the private sector arrangements.
The second finding of the Scott report, the conclusion of which is at paragraph 41 on page 9, is that when considering a pension scheme it is foolish to be influenced by short-term considerations, especially at a time of high inflation. The current arrangements were started by the Pensions (Increase) Act 1971, the passing of which, my history masters tell me, was acquiesced in by all parties. The theme behind the debate was to bring us into line with most Western countries, especially in three aspects—to link public service pensions with prices, pay or position. That was part of the theme that the hon. Member for Battersea, South (Mr. Dubs) admirably presented.
The right hon. Member for Swansea, West (Mr. Williams) made a good speech. He pointed out that the candidates in the 1979 general election were asked about their views on pension arrangements. My response was that index linking for public sector pensions should not be interfered with, although the funding deserved attention. I hold to that view.
We have not gone as far as we should over equality and fairness of contributions in the public sector. We have had contributions to the debate of a high order on pension arrangements and contributions, but we have heard nothing of life expectancy that they have to sustain. I question the introduction of statutory instrument 1151 on 10 August. It increased male police officers' pension contributions from 7 per cent. to 11 per cent. and female officers' contributions from 5 per cent. to 8 per cent. A police officer entering the service on 1 September this year, who never gained promotion and who never had a pay award, would, at present rates, contribute £32,000 for a pension that on average should sustain him for seven years after thirty years' service.
I accept that there must be a cut-off point. Again, the Front Bench should consider that; and perhaps when the matter is debated in the future, there will be positive proposals.
The House is not crowded today, but those hon. Members who are here have played an important part in creating a social history for pensions. The Scott report will have a much wider impact than on the Civil Service. From my research, I know that about 10 million people have a direct interest either as pensioners or as potential recipients. Paragraph 41 of the report contains the key to the successful introduction and continuation of pensions. It has been stressed many times that the great benefits that can be received must be achieved within manageable proportions of inflation. Inflation destroys nations and society like an invading army. The greatest blessing that a Government could give Britain is low inflation. It would be a great blessing to pensioners, the sick, the disabled and to those on fixed incomes. With all the power at my command, although very little time, I urge the Government to accept the findings of the Scott report and to hold fast to the principle that was established in the Pensions (Increase) Act 1971. It was a covenant of honour made between the House and the British pensioner. To that end, it must be honoured. I support the Scott report and commend it to the House.

Mr. Alan Williams: I did not wish to intervene again because I left the Minister in no doubt about my views. However, I must congratulate Sir Bernard Scott on producing an independent report that has led to a shift of policy affecting more than 7 million people. However, his independence may ensure that he will never again serve on a public body set up by the Government.
I realise that not all points can be covered today and that the Minister may wish to write to individual hon. Members, especially about local government. There is also anxiety about the part-time worker. If the Minister can answer now, I should be glad, but if not, perhaps he will write to me.
In my initial speech I said that we would look for an assurance from the Government—I think that we had it virtually in the Minister's opening remarks—that they accept the continuation of indexed pensions. I ask the hon. Gentleman to say when he will introduce his propositions for new contribution levels if he has such propositions in mind.
During the debate I have been asked whether a Labour Government would favour the encouragement of the private sector in matching the provision of index-linked pensions. We would, and we would be glad to have discussions with the providing organisations to ascertain what could be done to facilitate such an approach.

Sir William Clark: Does that mean that a Labour Government would continue or accelerate the issue of index-linked bonds?

Mr. Williams: I am not the Shadow Chancellor of the Exchequer and it is not my remit to make a positive statement. As I have said, we would have discussions to determine the appropriate assistance that could be provided. The mechanisms that we would implement would depend on the prevailing circumstances.
We have heard emotional speeches about the moral duty of Governments to preserve the standard of living of


those least able to protect themselves. Following that, there has been discussion of a cut-off point. When assistance is most needed, when inflation is at its highest, it seems anomalous that, at that very time, the moral obligation will be abandoned.
The hon. Member for Croydon, South (Sir W. Clark), whose contribution I enjoyed, said that if a cut-off point had been set at 6 per cent. it would not have made a great deal of difference. I realise that the hon. Gentleman talked about 6 per cent. hypothetically and that he will not want to be held to that figure. As we know, the average pension for a civil servant is £32. In year 1, when inflation was 22 per cent. , the average civil servant pensioner would have lost 16 per cent. of his income if there had been a 6 per cent. cut-off point. In year 2, when inflation was 15 per cent., he would have lost 9 per cent. In year 3, when inflation was 10 per cent., he would have lost 4 per cent. During that period someone who is now in receipt of £32 a week would have lost nearly one-third of that purchasing power.

Sir William Clark: Even if there were a cut-off point of 5 or 6 per cent., the pensioner would still draw the State retirement pension, which has been indexed.

Mr. Williams: The hon. Gentleman must bear in mind that there are those who are drawing pensions which, when combined, do not provide a luxurious standard of living. For such pensioners a cut in their income has an incisive effect upon their standard of living. As for the possiblity of cuts in gross sums at the higher levels, we can understand the public relations disadvantages of some of the increases that we have seen.
The Minister will probably confirm what he said in an Adjournment debate. I expect that he will say that as few people are involved very little money would be saved, although embarrassment would be avoided.
I must re-emphasise the blame that I laid in my opening speech on the Prime Minister. The right hon. Lady is determined to blame civil servants for the consequences of the inflation which her policies generated. In his introductory speech the Minister had to eat the Prime Minister's words. They were every bit as indigestible today as they were when first uttered.

Mr. Hayhoe: I have listened to every word in what has been generally a balanced and constructive debate. I am grateful to all who have contributed to what has been acknowledged on both sides of the House to be a complicated subject of considerable importance. I am sorry that the right hon. Member for Swansea, West (Mr. Williams), in both his opening and his closing speech spoilt his broad contribution by the petty and spiteful tirade that he directed against my right hon. Friend the Prime Minister. Even if not doing so physically, he must have been looking over his shoulder while making those remarks. Given the present state of his party, I suppose that one can make some allowances for that sort of contribution. It seems that it has to be made by Labour Members. Being in a charitable mood, it is probably better if I draw a veil over the extravagant language that he used.
I asked for hon. Members' views on the suggestion that the Civil Service pension scheme should be made contributory. So far as I could judge, it received a general

welcome from all who spoke, and I am grateful for what has been said. I think that it is also generally accepted that there should be no net increase in public expenditure and that, all other things being equal, the change in itself should be neutral as well. Of course it is far too early to lay down details of how and when this could be done, and there will have to be discussions with the Civil Service unions. I am advised that the administrative costs of a contributory scheme would not be expected to be particularly high. Therefore, I do not believe that administrative cost will be the determinant.
If we went down this route, there would have to be a better understanding by the general public of the pension arrangements for civil servants. The right hon. Member for Manchester, Openshaw (Mr. Morris) saw as a valuable aspect of such a change the openness and public confidence that would flow from it. The hon. Members for Bately and Morley (Mr. Woolmer) and for Battersea, South (Mr. Dubs) referred to the dangers of misunderstanding and misrepresentation, and I accept that those dangers exist. I wish that one were in a position to ensure that there would be no misunderstanding or misrepresentation in the media and by commentators, but, alas, that is not within our power. Indeed, I do not really wish that it were, as I believe that the advantages of a free press are greater than those of any such Government control. Nevertheless, if we take this course it is important that those of us who know the facts should do all that we can to avoid giving any grounds for such misunderstanding and misrepresentation and that if it is occurs we should do our best to damp it down.
The Government's general attitude to index linking in pensions, gilt-edged and other areas, was mentioned particularly by my hon. Friend the Member for Croydon, South (Sir W. Clark). As he knows, the Government's position on this will have been set out in the memoranda produced by the Treasury for the Select Committee in July this year. I also recall the debates on the Finance Bill, but I do not think that it is appropriate for me to try to build on that today, particularly as I have many other things to say.
The genuine costs of the present index-linked pension scheme were also mentioned in the debate. My hon. Friend the Member for Croydon, South said that the actuarial advice that he had received suggested that the combined employee-employer contribution would need to be about 33 per cent. of total income to produce a viable scheme. I can only say that my information is somewhat different. I understand that the chief executive of Target Life has spoken in broad terms of a 20 per cent. combined contribution over 30 years as the basis for a fully indexed pension of two-thirds of final pay and I believe that the Government Actuary's calculations put him in the same parish as the chief executive of Target Life. The Government Actuary's calculations were published and debated with the actuarial profession in October 1981 and I understand that there was broad endorsement by the profession of the basis used by the Government Actuary. The market price of indexed gilts now provides additional evidence to the effect that the 3 per cent. real rate of return assumed by the Government Actuary is perfectly reasonable in the light of experience.
Megaw suggested that the Government Actuary should discuss his assumptions with outside advisers, and the hon. Member for Colne Valley (Mr. Wainwright) suggested that we should have a new committee or standing


conference. I am not sure about going that far, or whether such an institutionalised arrangement is necessary. However, I assure him that the Government believe, as does the Government Actuary, that it is right and proper for such discussions with outside advisers to take place. All those who are interested want the process to be a transparent one where there is understanding, and public confidence flowing from that understanding.
I have been asked by the right hon. Member for Swansea, West and others to give a categorical assurance and commitment about index linking in the future. I made it clear that the Government's priority is to get contributions right, and there is further work to be done there. Benefits and methods and levels of financing must be considered together within the context of inflation trends. It is foolish either to seek or to give an open-ended, wholly unqualified commitment. I did not do so in my earlier speech and I cannot do so now. The right hon. Member for Manchester, Openshaw (Mr. Morris) in an intervention during the speech of the right hon. Member for Swansea, West made it clear that any such commitment did not mean anything. As he so rightly said, in context of future roar-away inflation any such commitment would mean little.
I prefer to rest on the words I have used. They were carefully chosen, and I noted how the House responded. My hon. Friend the Member for Croydon, South made suggestions about limiting increases. He suggested—I accept it as such—that a 6 per cent. year-on-year figure would perhaps have been appropriate. That was referred to again by the right hon. Member for Swansea, West. I have had that suggestion looked at carefully. A pension of £10 a week in 1972 becomes a pension of £41·50 a week in November 1982 as a result of the operation of the 1971 Act. That is a little above the average, but if that pension of £10 a week in 1972 had been subject to a 6 per cent. limit each year the total would be now £19—under half of what it is. I do not believe that that would have been either acceptable or sustainable in the House.

Sir William Clark: I accept that, and I am grateful for the fact that the figures have been worked out. My point is that that pensioner is collecting the retirement pension which is index linked at the same time, but the private sector pensioner will be getting probably £14 a week only, not £19.

Mr. Hayhoe: I was going to make that point if my hon. Friend had not interrupted me. In addition to the public service pension, the pensioner would receive the national retirement pension, which is fully index linked.

Mr. Chris Patten: My hon. Friend is talking about the level of pension that would be received by a nurse or somebody in that sort of professional group. The 6 per cent. limitation would more or less halve the pensions of nurses.

Mr. Hayhoe: That would be so if the limitation were in place. If the limitation had been operating, pressures would have made the figures unsustainable. Our brief exchange has been useful in putting the matter in balance.
Hon. Members have suggested that there should be a cut-off point for higher pensions. What my hon. Friend the Member for Bath (Mr. Patten) said about taxation is always ignored when considering the problem. Figures in the press of massive increases, sometimes involving

thousands of pounds, never include the information that after tax the sum is reduced. We must take that into account.
I dealt with the cut-off suggestion in our debate in February. I said:
The financial savings of doing anything would be small and would tend to discriminate against those with long service who have transferred in pension rights perhaps from previous employment or who have bought added years at their own expense and see themselves as having entered into a contractual arrangement of that kind. The counting of war service might also put someone on the wrong side of any line we drew. I can imagine the comments that would be made in the House if that were to happen.—[Official Report, 5 February 1982; Vol. 17, c. 718. ]
The cut-off idea does not seem to be particularly helpful.
My hon. Friend the Member for Brentwood and Ongar (Mr. McCrindle) asked whether it was right to talk of depriving someone of something to make others feel better. Like him, in politics I have always been against levelling down but in favour of levelling up.
My hon. Friend the Member for Kensington (Sir B. Rhys Williams) made an interesting and thoughtful speech. He said that he favoured a benign index which would be morally more appropriate than the prices index which has been used since the 1971 Act. He suggested that GNP should be used. I do not have the GNP figures, but they do not differ much front the figures for GDP. If such an index had been used in the last decade a pension linked to his benign index would have increased not four times, but by more than five times. He is the only hon. Gentleman in the debate to propose a significant betterment, but he will recognise that we have to consider whether we could afford that.

Sir Brandon Rhys Williams: There would also be significant contributions.

Mr. Hayhoe: That is the theme that I have reiterated. We must get the contributions right.
The hon. Member for Battersea, South referred to part-time employees in local government. I am aware of the position. My right hon. Friend the Secretary of State for the Environment deferred decisions about regulations at the beginning of last year. Since then NALGO, the principal union involved, has campaigned. The hon. Gentleman asks whether there is a possibility of a move in that respect. I cannot say: it falls outside my departmental responsibilities. I give no undertaking, but I shall draw the hon. Gentlemen's remarks to the attention of my right hon. Friend.
My hon. Friend the Member for Dudley, West (Mr. Blackburn) referred to the police. He said that, in considering these matters, one should take account of life expectancy. He is quite correct. Clearly, any actuarial calculation should take account of the life expectancy of the people involved. He gave a figure for the life expectancy of retired policemen of seven years. Perhaps I have misunderstood him, but I cannot believe this is true. My advice is that actuarial calculations are based on a life expectancy for a retired policeman of over 20 years. That puts his figures into a very different light.
In my view, the additional contribution which the police have been asked to make to their pensions is fully justified for the fast accrual system that they have, and it is part of the process of getting pension contributions right. It has been done for the Armed Forces, and has been and is being done for some of the printing workers in HMSO.
We are moving in that direction for some of the forestry workers. There are whole sections of the public services where this should be done, and I think that it will be accepted by all concerned that it is the right way to proceed.
The crucial importance of dealing with inflation has dominated this debate. There can be no question that the more we succeed in that battle, the easier becomes effective indexation within the public service and the comparisons that are drawn between public service schemes and private schemes.
I stress again that private sector schemes often have a lower contribution rate than public service schemes. We must consider the matter in the round—the benefits, the contributions, and the terms of the arrangement.
I accept, as I said earlier, that private schemes pose particular problems and unfairnesses for early leavers. The House will appreciate, and the hon. Members who raised the matter will understand, that this is not one of my departmental responsibilities. My right hon. Friend the Secretary of State for Social Services answered fully a question on the matter earlier this week, and I have little doubt that his attention will be drawn to what has been said in this debate. Concern about the plight of early leavers is shared by the whole House, and, if we can find a practical method of making progress in this respect, I am sure that it will be welcomed on all sides.
The other theme of the debate was the concept of public service. It was mentioned more than once in appropriate terms, and rightly so. The country will be the loser if public service and public and civil servants are subjected to continued unfair criticism, and if their real and crucial contribution to our national life is derided or undervalued. I am glad that this debate has given an opportunity for Parliament to reiterate what it has said in the past about those people who are given the task by Parliament of carrying out its wishes and decisions, for that is what our public and civil servants are there to do. I am also glad that the House today has recognised the dignity and worthwhile nature of public service as part of our national life. I am delighted with the fact that it has been stressed so many times during the course of what, in my view, has been a useful and important debate.

I beg to ask leave to withdraw the motion.

Motion, by leave, withdrawn.

Radiological Pollution

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Cope.]

Mr. David Atkinson: I want to draw the attention of the House to the threat to our South coast of radiological pollution from nuclear power stations on the French coast opposite. I seek today detailed assurances from my right hon. Friend the Minister regarding the efficiency of the proposed bilateral emergency warning arrangements that have been the subject of negotiations with the French Government, and to learn of any British arrangements which exist or are planned to monitor and detect airborne and seaborne effluents from French nuclear installations.
I need not spend time describing the serious implications that any such pollution would have—
It being half-past Two o'clock, the motion for the Adjournment of the House lapsed, without Question put.
Motion made, and Question proposed, That this House do now adjourn.—[Mr. Cope.]

Mr. Atkinson: I need not spend time in describing the serious implications that any such pollution would have, not just for public safety but for the major industries and trades in all of our southern coastal towns and communities, together with their hinterlands on which the majority of our jobs are based and of which the tourist industry, farming and fishing are the most obvious. Suffice it to say that the disastrous consequences for those communities which have regrettably suffered from the contamination of their beaches by oil in recent years will pale by comparison.
It was the possible threat of radiological pollution of the Dorset coast which prompted the understandable and legitimate concern of that county's branch of the Association of District Councils last year, causing it to approach the National Radiological Protection Board at Didcot regarding newspaper reports that the board was monitoring our coast in order to detect possible pollution.
The county's branch was concerned that there appeared to be no provision for the detection of any pollution to be reported locally. In reply, the board referred to the limited monitoring schemes which it undertakes throughout Britain to measure radioactivity in air, rain and milk. However, it gave no indication of any monitoring of the South coast, merely mentioning that the nearest monitoring station to Dorset was at Shrivenham, near Swindon, some 60 miles inland from the Dorset coast.
There appears to be no provision for the detection and monitoring of any radiological pollution of the South coast, or for such information to be made available at a local level. I look forward to the reply of my right hon. Friend the Minister in that respect, as, I am sure, does my hon. Friend the Member for Rye (Mr. Godman Irvine).
Before proceeding further, I should explain the origins of the newspaper reports which prompted local councillors in Dorset to be concerned. Eighty miles south of my constituency there lies a French nuclear fuel reprocessing plant at Cap de la Hague, on the Cherbourg peninsula. There, on 6 January last year, fire broke out in a silo containing nuclear waste. It lasted 15 hours, during which time a cloud of radioactive material was emitted which was blown out to sea and 20 people were contaminated at the plant.
That was the sixth such incident within 12 months. In one, a crack was discovered in a pipeline carrying radioactive material out to sea, as well as a previous fire which temporarily closed the plant.
In the Channel Isles in August last year a British investigation found that radioactive materials discharged from Cap de la Hague were being reconcentrated in seaweed. This seaweed is used extensively as a fertiliser on the islands and I believe that monitoring is now necessary to detect any contamination of fuel and vegetables.
While I understand that there is no evidence that England's South coast has experienced similar waterborne contamination, it may be recalled that two years ago there was a foot and mouth scare on the Isle of Wight because the disease had been carried by wind from France.
Therefore, in referring to these facts, which have been reported in both English and French newspapers, I am not being deliberately alarmist. Indeed, I stress that I am in favour of nuclear energy. It has proved to be a safer and cheaper alternative to fossil fuels, but the fact is that because nuclear-generated electricity is considerably cheaper than electricity generated from coal and oil-fired plants the emphasis of France's energy policy today is on producing 75 per cent. of all electricity by nuclear generation. The result is that 18 pressurised water reactors are operating, are under construction or are planned to be built along the French coast between Dunkirk and the Cherbourg peninsula as well as the Cap de la Hague fuel processing plant, which is expanding rapidly as a result of a £2 billion investment programme.
As my right hon. Friend the Minister will no doubt confirm in his reply, the Government are currently negotiating an agreement with the French Government on bilateral emergency warning arrangements in the event of any release of radioactivity in one country that might be liable to affect the other. However, these negotiations were first agreed in May 1980—two and a half years ago—and I understand that they are not yet complete. That does not suggest to me the urgency that should be shown towards establishing emergency warning arrangements.
Moreover, I suggest that such arrangements in themselves will not be enough. In view of the accidents to which I have referred, and the proliferation of nuclear power plants now taking place on the French coast, common prudence suggests that we should now give serious consideration to establishing a monitoring station to cover England's South coast. I hope that my right hon. Friend will be more positive in his reply in this respect than was the National Radiological Protection Board in considering that request from the Dorset branch of the Association of District Councils.
On Friday 1 October 1982, the Parliamentary Assembly of the Council of Europe debated a report on the concentration of nuclear power stations in frontier regions. The report called for joint monitoring and civil protection systems including contingency procedures where installations exist or are proposed with a view to obviating the risks of pollution or serious accidents in frontier regions and, as a result of my amendment—which was accepted by the Assembly—coastal regions as well.
The report further urges that Governments of member States that have not yet done so should sign and ratify the European outline convention on transfrontier co-operation between territorial communities or authorities, which came into force in December last year. Britain has not, to

date, signed the convention. That may be understandable to some extent, as our only land frontier is with the Irish Republic, where no nuclear installations are sited. Thu there would be no need to establish bureaucratic transfrontier commissions or formal structures here as suggested by the convention. However, the aims that the convention seeks to achieve should, like the Council of Europe report in its amended form, apply equally to adjacent coastal regions.
Therefore, I urge my right hon. Friend to consider whether any advantages would be gained by seeking 10 amend the convention to include marine frontiers and by Britain then signing and ratifying it. I have it in mind, for example, that local authorities such as those in Bournemouth and Dorset, and along the entire length of our South coast, might wish to be consulted by the French Government before the siting of nuclear power stations opposite them.
The debate has enabled me to voice the concerns previously expressed on behalf of local authorities in Dorset for the safety of our coast in view of the increasing numbers of French nuclear installations opposite us and the accidents that have taken place. I have referred to three areas of action in regard to which I look forward to my right hon. Friend's :response: first, an early agreement with the French Government on bilateral emergency warning arrangements; secondly, the establishment of a monitoring station to cover the South coast; thirdly, our ratification of the European convention once it has been amended to take coastal regions into account. I hope that my right hon. Friend will be able to satisfy the House on all those points so that my constituents in Bournemouth—and, indeed, the entire population of the South coast—can be assured that all possible precautions are being taken to ensure that they are not and will not be at risk.

The Minister of State, Ministry of Agriculture, Fisheries and Food (Mr. Alick Buchanan-Smith): I am very glad that my hon. Friend the Member for Bournemouth, East (Mr. Atkinson) has had the opportunity to raise the subject of radiological pollution, since I know that it is one that gives rise to public anxiety. I welcome the opportunity that he gives me to say something about it in reply. I know that this is a matter a interest to my hon. Friend's constituents and those who live in the area, for the very legitimate reasons that he has described, and that he approaches the subject from a sensible, responsible point of view that underlines the need for responsible vigilance with regard to it. He expresses views which are felt not only along the South coast but much more widely elsewhere.
As my hon. Friend realises, some of the matters to which he has referred are not primarily the responsibility of my Department, but my Department plays a key role in relation to some of the matters to which he has referred., particularly the monitoring of the United Kingdom's coastal waters and the safeguarding of our agricultural and fishing industries from radioactive pollution. Those are important activities , and for that reason specifically I am glad to have the opportunity to deal with them.
I should like first to say a few words by way of background, because there are occasions when discussion and debate about nuclear and radioactive issues get a little out of perspective. I should like to try to put the discussion into some sort of perspective.
With regard to monitoring and so on, I am very much aware that the whole question of radioactivity can often be strange and frightening. We have to realise—as anyone who has had to study the matter will know—that all of us in our everyday lives are exposed to radiation which occurs quite naturally. For example, the earth's crust is radioactive, and even the human body is mildly radioactive. An estimated 78 per cent. of the radiation that is received by the population of the United Kingdom as a whole comes from medical uses. It is equally significant that much less than 1 per cent. comes from radioactive waste. It is the aim of the Government—as I think it has been of every Government—to try to keep that figure as low as it can possibly be.
In giving some background to the discussion, I am not trying to minimise the need to manage radioactive waste safely, because I believe that the public have a right to expect and to get high standards, but we have also to look at those standards in their proper context, without either minimising or exaggerating the risks.
I turn now to the background of the arrangements, national and international, under which we have to operate. Within the European Community, radiological protection standards are based on the recommendations of the International Commission on Radiological Protection. It is an international, non-governmental body of acknowledged experts. The commission's recommendations broadly specify, first, that all practices that give rise to radioactive waste must be justified in terms of their overall benefit. Secondly they specify that exposure to radiation from radioactive waste must be kept as low as is reasonably achievable, taking economic and social factors into account. Third, they say that the most exposed section of members of the public should not receive more than a specified maximum dose from all sources of radioactivity, excluding natural radiation and medical uses. Those standards are embodied in Community legislation, and there are further important safeguards written into the Euratom treaty. So much for the broader international background.
Member States must carry out monitoring of their territories. They are also obliged to keep the commission informed of the result. The commission must be consulted about all new plans to dispose of radioactive waste. The consultation procedure does not extend to the actual siting of the power stations, but it covers accidental as well as routine releases of radioactivity. The disposal plans are examined by a group of experts from member States before the commission decides whether they are likely to lead to the contamination of any other member States' water, soil or airspace. Those are obviously the important factors in deciding whether the position of a nuclear site will affect other member States.
Although my hon. Friend referred specifically to the siting of French nuclear stations, it is worth bearing in mind that France is not the only member of the Community to build coastal stations. We do so in the United Kingdom.
Two French coastal sites have been through the consultation procedure, and those still under construction will have to do so eventually. In the case of the two sites in operation, the commission concluded that neither routine discharges nor any credible accidental liquid waste would have any significant effect on our coastal waters. It is worth mentioning that the Channel currents and the

mere action of the sea would carry any radioactive leakage into the sea from France away from our South coast. My Department's fisheries and radio biological laboratory has been kept fully in touch with developments and it agrees that the commission's assessment is correct.
Certainly, a major accident at a French nuclear site might involve the need for some precautionary measures against airborne pollution for any area affected on the South coast. That would have to be dealt with in much the same way as a major accident at an English power station.
I turn to my hon. Friend's more specific questions, especially those relating to warning and monitoring. Community legislation requires that the commission and neighbouring member States be notified as a matter of urgency of any accidents that lead to members of the public being exposed to radiation. As my hon. Friend mentioned, France and the United Kingdom have been discussing detailed bilateral arrangements for such notifications. My hon. Friend was right to say that the arrangements have been under negotiation for what may appear to be a considerable time.
It is important that we get the arrangements right. A considerable amount of time has been taken up in the search to get them right. I hope that my hon. Friend will be reassured by this. I understand that the discussions are at an advanced stage. However, while it is desirable to bring them to a conclusion as quickly as possible, what matters is what happens in the meantime and what practical protection there is. I am happy to tell my hon. Friend that the Health and Safety Executive, which is a United Kingdom body, has an arrangement with its French counterpart to report incidents that have any major radiological significance. As a result the United Kingdom should be informed promptly of any accident that is likely to affect the South coast.

Mr. David Atkinson: I am grateful to my right hon. Friend for his remarks. Is he therefore saying that the Health and Safety Executive was informed of the series of accidents, to which I referred, which took place at Cap de la Hague last year?

Mr. Buchanan-Smith: I shall consider the specific point that my hon. Friend has made. As he knows, I have no direct responsibility for the Health and Safety Executive. My interests have been mainly in monitoring the arrangements. What I have seen of them shows that they have worked satisfactorily. I hope that they work practically. Practical protection from radiation concerns me more than anything else, for example administrative arrangements. Pending the formalisation of the bilateral arrangement that is under discussion, we have satisfactory practical arrangements.
I have already explained that member States must carry out monitoring on their own territory. The commission must be kept informed of the results. It can check the monitoring arrangements. The United Kingdom operates nuclear sites along the South coast. It must carry out monitoring at all stations, not only on the South coast, as a condition of the waste discharge authorisations that it must hold under the Radioactive Substances Act 1960.
In addition, my Department's fisheries radiobiological laboratory carries out its own separate programme of monitoring. The results of that programme are published in annual reports on radioactivity in surface and coastal waters in the British Isles. Copies of those reports are


placed in the Library and are available on request to anyone who is interested in seeing them. Therefore, there are two stages of monitoring. The first is for our own nuclear sites and the second is what is carried out by my laboratory.
That monitoring is geared to British rather than French nuclear sites. British nuclear sites would also pick up any unusual levels of radioactivity, from whatever source. There are three sites on the South coast that are discharging some radioactive waste—Devonport, Winfrith and Dungeness. Routine monitoring there would pick up anything unusual, from whatever source. In addition there is the National Radiological Protection Board, to which my hon. Friend referred, which has set up a station in the Channel Islands. I hope that what I have said will reassure my hon. Friend.
Those routine surveillance programmes should be sufficient, particularly as normal operations at French sites have no radiological significance to this country. I know that my hon. Friend is concerned about major accidents at a French site. I am under no illusion that some extra monitoring might not become necessary if there were such an accident. It would not necessarily help to have fixed stations in this country for that purpose because it is impossible to say in advance what the best site would be for any such station. In any case, from the advice available to me I do not believe that it would be difficult to set up additional emergency sampling arrangements in the event of a major incident, if it proved necessary.
In addition, a further check is provided by the monitoring carried out for the Channel Islands by the fisheries radiobiological laboratory. It is a long-standing programme initiated before the discharges from the plant at Cap de la Hague. The programme is essentially designed to assess the impact of the routine discharges. There is no question of extra monitoring being required as a result of any recent accident. All the information that I have seen suggests that there was no significant release of

activity off site in either of the two incidents at Cap de la Hague in 1980 and 1981. That is borne out by the monitoring results from the Channel Islands. It is possible to detect low levels of activity around the islands attributable to routine discharges but they do not pose a health risk.
Thirdly, my hon. Friend referred to transfrontier cooperation. As he acknowledged, the formal arrangements are confined specifically to where there are land frontiers. As drawn up, they are not appropriate to frontiers separated by areas of coast and not necessarily appropriate to the co-operation to which he has referred. Although I have outlined the practical arrangements, I shall keep an open mind and draw the issue to the attention of ray colleagues, and if improvements are needed in the trans-frontier arrangements where the frontiers are separated by sea we shall take any actions necessary or appropriate.
I hope that I have helped to reassure my hon. Friend. I sympathise with the public anxiety about the effects of radioactive waste. It is a complex subject. It is sometimes difficult to explain in layman's language without appearing to gloss aver the complexities or to trivialise the issues. I hope that I have avoided both difficulties. I take the matter seriously. I am grateful to my hon. Friend for the way in which he raised the subject. We must try to treat the matter objectively. We know a great deal about radioactivity and its effects but we should not exaggerate or sensationalise the issues.
Through our national control systems and the Community arrangements, my Department is committed to ensuring that the agriculture and fisheries industry and the general public are properly protected throughout the United Kingdom. I believe the current arrangements provide the necessary protection, and I welcome the opportunity to spell them out in more detail.

Question put and agreed to.

Adjourned accordingly at one minute to Three o'clock.